Another appellate court has ruled against prediction market provider Kalshi, holding that sports contracts fall under state regulatory authority.

Kalshi's Sports-Event Contracts Are Not Federally Regulated Swaps, Three-Judge Panel Rules

A three-judge panel ruled on Friday that Kalshi's sports-event contracts are not federally regulated swaps, while agreeing that Kalshi had the right to bring the case. The decision lands in a dispute that has grown since prediction markets offering sports-related contracts took off after the 2024 election. States have tried to bring those markets under their own regulatory frameworks, arguing that they compete with state gambling platforms and offer identical products to gambling sites and apps.

Why states challenged prediction markets

For many states, the issue is that federally regulated platforms do not pay state taxes while still competing with state-regulated platforms. A second major point of contention is access: prediction markets often offer their products to people as young as 18, rather than 21, like most state gambling operators. Those differences explain why states have viewed sports-event contracts as similar to gambling products, even when the platforms describe them as prediction markets.

What the court decided

The panel agreed with Kalshi on a procedural point: Kalshi did have the right to bring a case. But it disagreed with the company's core legal argument that the products in question were federally regulated swaps.

In its reasoning, the ruling said: "While we agree with Kalshi that its sports-event contracts are conditioned on the occurrence of 'event[s],' we conclude that Kalshi's contracts do not depend on events that are 'associated with a potential financial, economic, or commercial consequence' within the meaning of the statute."

That sentence separates two ideas. A contract can be tied to an event happening without the event necessarily having the kind of financial, economic, or commercial consequence that the statute requires for the product to be treated as a federally regulated swap.

What the Giants example shows

To illustrate the definitional problem, the ruling used the example of the New York Giants winning a Super Bowl. It said the result could depend on how the "event" in question is defined. If the event is the Giants winning, then that victory would be described as "that event having occurred."

The example shows why the court focused on the precise language of the contracts rather than the general commercial nature of sports events. A sports result may have commercial consequences in a broad sense, but the ruling says the statute's wording still controls whether the contract falls into the federal swap category.

What the ruling leaves open

The panel's conclusion narrows one argument that Kalshi can use: treating its sports-event contracts as federally regulated swaps. It leaves the broader contest over whether state gambling frameworks may apply to the same products.

For readers, the immediate value is to understand the regulatory split. Kalshi's case turns on classification: if the contracts are swaps, the federal framework matters; if not, states may press their arguments about taxes, access, and product similarity. The ruling moves the dispute toward that second path, at least on the swap question.