Kalshi must lock out state users after major court loss
The Sixth Circuit ruled Sept. 25 that Ohio and Tennessee can apply their gambling laws to Kalshi's sports contracts. The court rejected Kalshi's argument that complying state by state would conflict with its duties as a federally regulated exchange, and it pointed to geofencing as a workable way to satisfy both. That second appellate win […] The post Kalshi must lock out state users after major court loss appeared first on CryptoSlate.
The Sixth Circuit ruled Sept. 25 that Ohio and Tennessee can apply their gambling laws to Kalshi's sports contracts.
The court rejected Kalshi's argument that complying state by state would conflict with its duties as a federally regulated exchange, and it pointed to geofencing as a workable way to satisfy both.
That second appellate win for states hits the demand Eilers & Krejcik Gaming models as most exposed, the 69% of Kalshi's retail sports demand that comes from states without legal online sportsbooks.
The unanimous panel held that Kalshi had failed to show its sports contracts meet the Commodity Exchange Act's definition of a swap, the premise behind its claim to exclusive CFTC oversight.
It then added an alternative holding that even if the contracts were swaps, federal commodities law would leave Ohio and Tennessee gambling statutes in force.
That second finding gives states within the circuit two separate paths to win, since a later ruling in Kalshi's favor on the swap question would leave the preemption conclusion standing.
| Legal question | Kalshi’s position | Sixth Circuit ruling | Practical consequence |
|---|---|---|---|
| Are the sports contracts “swaps”? | Yes, bringing them within the CFTC’s exclusive-jurisdiction framework | Kalshi failed to show the contracts meet the relevant swap definition | Kalshi cannot rely on the swap classification to block state enforcement |
| If they are swaps, does federal law preempt state gambling law? | Yes | No — Ohio and Tennessee laws can coexist with federal regulation | Even a later win on the swap question would not automatically eliminate state authority |
| Can state-by-state compliance coexist with DCM rules? | No; geographic segmentation conflicts with national-market obligations | Yes | State-specific access controls remain legally possible |
| What happens now? | Kalshi sought protection from enforcement | Ohio denial affirmed; Tennessee injunction vacated | Both states regain room to enforce while litigation continues |
The court affirmed an Ohio ruling against Kalshi, vacated the preliminary injunction that had shielded it from enforcement in Tennessee and sent both cases back to the lower courts.
Like the earlier rulings in this fight, the decision comes at the preliminary-injunction stage. It now governs federal courts across Ohio, Tennessee, Michigan and Kentucky.
Kentucky sued Kalshi and Polymarket earlier this year, and Michigan's state-court case runs on its own track.
Kalshi argued that its obligations as a designated contract market, including impartial access and national order matching, made compliance with Ohio's geographic restrictions and Tennessee's laws impossible.
The panel read those federal requirements as applying to whatever markets an exchange chooses to list, which leaves room for contracts offered in some states and withheld in others.
It pointed to companies that already use geofencing to meet federal exchange rules and state gaming laws at the same time. Kalshi told the court that segmenting access by geography would be technically difficult, time-consuming, and expensive, and the judges answered that “expensive does not mean impossible.”
In Michigan, a Sept. 1 state-court injunction requires Kalshi to keep covered sports contracts unavailable to users located in the state, verified through a qualifying third-party geolocation provider.
Violations carry penalties of up to $500,000 a day. The Kalshi app keeps working there, and its sports markets disappear for anyone standing inside the state line.
EKG's July model estimates that 69% of Kalshi's retail sports demand comes from states without legal online sportsbooks, with California and Texas alone accounting for 44%.
EKG builds those figures from surrounding indicators, since Kalshi keeps its state-level trading data private. The same research estimates prediction markets displaced only 2% to 4% of sportsbook handle in the most competitive legal betting states, pointing to growth driven mainly by customers in places closed to licensed sportsbooks.
Sports carries the business, with more than 90% of Kalshi's trades and 95% of its revenue in 2025 tied to sports contracts, according to figures cited in the Ninth Circuit's August opinion. As a sizing exercise, restrictions covering half of that non-sportsbook footprint would cover a geography that holds about 34.5% of EKG's modeled retail sports demand.
California falls within the Ninth Circuit, which ruled against Kalshi's preemption argument in Nevada on Aug. 28. Texas belongs to the Fifth Circuit, which has yet to rule on the question.