Tennessee and Ohio Get Favorable Decision Against Kalshi

A US appeals court has sided with Tennessee and Ohio against Kalshi, arguing that the latter states may continue subjecting the prediction market platform to local gambling laws. This is an important turn of events, with a decision rendered on September 25 by the 6th US Circuit Court of Appeals in Cincinnati, which has added to the nationwide division on whether gaming laws can be leveraged to target gambling-like platforms such as prediction markets. Ohio and Tennessee Gain Ground Against Kalshi in Recent Ruling These platforms, Kalshi included, simply argue that their products are “swaps” and that they are regulated under federal statutes, administered by the Commodity Futures Trading Commission (CFTC). States such as Cincinnati and Ohio, however, beg to differ, as they argue that these products are too closely linked to gambling, specifically sports betting. The issue stems from the fact that sports event contracts emulate sports betting, and they are available at the age of 18, when the legal sports betting age for most states is 21. Commenting on last month’s ruling, a Kalshi spokesperson, Dani Lever, had this to say: “The ruling shows exactly why a state-by-state patchwork doesn’t work. Markets can’t operate when the rules change at every state line, which is why Congress created a single federal regulator with nationwide rules.” This ruling precedes a more recent one by Judge Martha Pacold of the Chicago federal district court, which said that while sports event contracts bore similarities to sports betting, the judge could not accept Illinois’ interpretation and demand to regulate them under gaming laws. At the time, Kalshi’s Luana Lopes Lara, the company’s founder, characterized the ruling as “beautiful.” The executive must have found Cincinnati’s outcome less so, however. Specifically, in the Cincinnati case, Kalshi did not show that its sports event contracts are indeed “swaps,” and that they need to truly be regulated under the CFTC. States Must Be Able to Police What Constitutes Gambling Judge Gibbons also noted that states had the exclusive remit to determine what constitutes gambling and to regulate that, calling it the “very heart of the state’s police power.” As to whether the Commodity Exchange Act could be applied to sports event contracts, Judge Gibbons simply explained that the intended purpose of the bill was to protect the national interest through means of managing and assuming risk, as well as obtaining pricing information. “ It is, therefore, difficult to see how determining the probability that a certain number of corner kicks will be taken in a given soccer game — or that a 30-leg parlay will hit — would serve (to) advance those goals,” the judge said as part of the unanimous three-judge panel ruling which backed the states’ case against Kalshi on this occasion.