Kalshi must block state users after losing a major court case.

Description: A Sixth Circuit panel said on September 25 that Ohio and Tennessee may enforce their gambling statutes against Kalshi's sports contracts. The court rejected Kalshi's claim that federal exchange duties make state-by-state compliance impossible, and it identified geofencing as a workable way to satisfy both sets of rules. The ruling affirmed the Ohio decision against Kalshi, removed Tennessee's preliminary shield from enforcement, and returned both cases to lower courts. The outcome is the second appellate victory for states in this dispute, and it reaches the part of Kalshi's sports business that Eilers & Krejcik Gaming models as most exposed.

A Sixth Circuit panel said on September 25 that Ohio and Tennessee may enforce their own gambling statutes against Kalshi's sports contracts. The court turned down Kalshi's claim that a federally regulated exchange cannot obey different state rules one by one, and it said geofencing can reconcile federal exchange obligations with state gaming law. The ruling affirmed the Ohio decision against Kalshi, removed Tennessee's preliminary shield from enforcement, and sent both matters back to lower courts. The outcome is the second appellate victory for states in this dispute. It also lands on the segment that Eilers & Krejcik Gaming identifies as most vulnerable: 69% of Kalshi's retail sports demand comes from states without legal online sportsbooks.

Two independent state paths remain open

Kalshi had sought protection from enforcement. Its case depended on treating sports contracts as swaps under the Commodity Exchange Act, which would place them under exclusive oversight by the Commodity Futures Trading Commission. The panel found that Kalshi did not show the contracts meet that swap definition.

The judges then made a second point that does not depend on the swap question. Even if the contracts were swaps, federal commodities law would not cancel Ohio's and Tennessee's gambling rules. That alternative holding means a future decision favorable to Kalshi on the swap issue would not automatically erase state authority.

The practical result is clear. Ohio's enforcement position stands, Tennessee's injunction is gone, and both states can pursue their own rules while the cases continue. The opinion, like earlier orders in this fight, was issued at the preliminary-injunction stage. Its reasoning applies in federal courts covering Ohio, Tennessee, Michigan and Kentucky. Kentucky has sued Kalshi and Polymarket earlier this year, while Michigan's state-court case follows a separate procedural path.

The court accepted state-by-state access controls

Kalshi argued that its status as a designated contract market required impartial access and national order matching, so Ohio's geographic restrictions and Tennessee's laws could not be satisfied. The panel rejected that framing. It read federal exchange requirements as tied to the markets an exchange chooses to offer, not as a mandate to make every listed contract available everywhere. That leaves room for contracts to be listed in some states and withheld in others.

The judges cited companies that already combine federal exchange compliance with state gaming restrictions through geofencing. Kalshi said geographic segmentation would be technically difficult, time-consuming and expensive. The court answered that “expensive does not mean impossible.”

Michigan provides a live example. A September 1 state-court order requires Kalshi to block covered sports contracts for users physically located in Michigan, using a qualifying third-party geolocation provider. Penalties can reach $500,000 per day. The app remains usable in Michigan, but the sports markets disappear once a user crosses inside the state boundary.

State limits touch the largest part of Kalshi's sports demand

Eilers & Krejcik Gaming's July model says 69% of Kalshi's retail sports demand comes from states without legal online sportsbooks. California and Texas alone represent 44%. The research firm estimates those shares from surrounding indicators because Kalshi does not publish state-level trading data.

The same analysis says prediction markets displaced only 2% to 4% of sportsbook handle in the most competitive legal betting states. That suggests much of the growth came from opening access in places where licensed sportsbooks were unavailable, rather than simply taking share from existing sportsbooks.

Sports dominates Kalshi's activity. Figures cited in the Ninth Circuit's August opinion say more than 90% of Kalshi's trades and 95% of its revenue in 2025 are tied to sports contracts. As a rough sizing exercise, restrictions covering half of the non-sportsbook footprint would affect about 34.5% of the modeled retail sports demand. California sits in the Ninth Circuit, which rejected Kalshi's preemption argument in Nevada on August 28. Texas sits in the Fifth Circuit, which has not yet ruled.

Ohio and Tennessee already run licensed sports betting

Both states have legalized sports wagering and regulate it with a minimum age of 21, geographic limits, licensing, taxes and consumer protections. Kalshi currently operates outside those rules. The Sixth Circuit opinion noted that states collected more than $3.2 billion in sports-gambling tax revenue in fiscal 2025. Ohio and Tennessee argue that sports contracts are acceptable in their markets if Kalshi follows the same standards as licensed sportsbooks.

Large sportsbook operators have used a similar federal route. DraftKings has said DraftKings Predictions now serves California and Texas, where its sportsbook is not available. FanDuel has said FanDuel Predicts offers sports contracts in states where online betting is illegal and will withdraw them once a state legalizes conventional sportsbooks. Both companies adopted the federal pathway Kalshi opened, and both already use state-by-state compliance systems of the kind the Sixth Circuit described.

Eilers & Krejcik Gaming measured $31.1 billion in US sports prediction-market execution volume through September 20 in the third quarter. It also reports that Polymarket's US exchange reached roughly 22% of sports contract volume in September. The firm now treats state-by-state contraction of the addressable market as the industry's leading near-term policy risk.

The circuit split and the Supreme Court timetable

The Third Circuit supported Kalshi in New Jersey in April, finding a reasonable chance that federal law could preempt state gambling restrictions. The Ninth Circuit rejected that theory in Nevada. The Sixth Circuit has now joined the Ninth Circuit for Ohio and Tennessee, leaving two circuits against Kalshi and one in its favor. A Fourth Circuit appeal involving Maryland is still pending and could change that balance.

New Jersey asked the Supreme Court on September 2 to resolve the split. Kalshi's response, originally due October 8, is now due November 9 after a September 22 extension. The Court has not yet decided whether to take the case.

Tennessee is the first practical test. Once the preliminary injunction was vacated, Tennessee regulators regained their enforcement position.

A national exchange could become a state-by-state marketplace

If the Supreme Court hears the dispute and adopts the Third Circuit's view, sports contracts could remain available nationwide under a single federal framework. A favorable Fourth Circuit ruling for Kalshi would strengthen that argument before the justices act. Kalshi would then compete with DraftKings, FanDuel and Polymarket on liquidity, pricing and product design. Eilers & Krejcik Gaming's projection of $279 billion in 2027 sports prediction-market execution volume would depend on a national market.

If the Sixth Circuit and Ninth Circuit reasoning spreads instead, Kalshi faces a state-by-state permissions matrix. Some states could ban sports contracts, while others could require licenses, a 21-and-over threshold, taxes or local geolocation checks. Geographic fragmentation also divides the pool of eligible traders, which could reduce liquidity and push Kalshi toward different contract catalogs from one state to the next.

Kalshi would still be a Commodity Futures Trading Commission-regulated exchange offering economic and political markets across the country. Its sports business, however, would trace the same borders that licensed sportsbooks already respect. Kalshi's advantage came from operating one federal market while sportsbooks answered to dozens of state regimes. Two appeals courts have now linked that geography to state law, and the Sixth Circuit pointed to geofencing as the tool that can redraw the map.

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Tags: Kalshi, Sixth Circuit, Ohio, Tennessee, geofencing