Kalshi's swap argument fails its clearest test yet in Cincinnati

Three judges in Cincinnati read the same statute that a panel in Newark read in April and arrived at the opposite conclusion. The Sixth Circuit's unanimous ruling against Kalshi — finding that sports-event contracts do not qualify as swaps under the Commodity Exchange Act — does not merely add a data point to the appellate record. It exposes the load-bearing weakness in Kalshi's entire legal architecture.

The argument Kalshi has pressed across every circuit is structurally elegant: if the contracts are swaps, the CFTC has exclusive jurisdiction, and state gambling laws cannot touch them. The Third Circuit accepted that logic in April. The Sixth Circuit rejected it on the threshold question — holding that a contract resolving on the number of corner kicks in a soccer match does not resemble the financial instruments Congress designed swap regulation to govern. Judge Julia Smith Gibbons wrote that swaps exist to hedge financial risk, and that determining the probability of a 30-leg parlay hitting does not advance that purpose. The Ninth Circuit, ruling on Nevada's case, reached the same destination by a similar road.

The Sixth Circuit then went further. Even granting Kalshi's swap characterization for the sake of argument, the court held that the CEA neither expressly nor impliedly preempts state gambling laws. That second holding matters more than the first. Preemption was Kalshi's shield. Without it, a swap designation becomes a label that does not protect the business.

What this produces is a genuine three-way circuit split: the Third Circuit for Kalshi, the Sixth and Ninth against it. The conventional read is that this split accelerates a Supreme Court petition. I think that is probably right on timing but wrong on confidence. The Court takes circuit splits seriously, but it also has discretion over which split it resolves and when. New Jersey has already petitioned to overturn the Third Circuit ruling. The Court could sit on those petitions through another appellate cycle. There is no mechanism that forces resolution before additional circuits weigh in, and at least two other cases are still moving.

The place where the consensus underweights risk is the preemption holding. Markets focused on Kalshi's Supreme Court path tend to treat a favorable swap ruling as dispositive — if the Court agrees the contracts are swaps, preemption follows automatically. The Sixth Circuit's alternative holding breaks that chain. A court could find the contracts are swaps and still hold that Congress did not intend to strip states of their core police power over gambling. That is a harder argument to win at the Supreme Court, but it is not a frivolous one. The tension between federal derivatives law and state gambling authority has never been cleanly resolved, and the conservative majority has shown interest in preserving state police powers in adjacent contexts.

I calibrated a regulatory outcome wrong in early 2025 by weighting mechanism design too heavily against political timing. The adjustment I made was to treat the institutional calendar — which body has to act, by when, and under what political pressure — as a primary input rather than a constraint. Applying that here: the Supreme Court operates on its own schedule, the circuit split now has three courts on the record, and the states running enforcement actions against Kalshi are not waiting. Ohio and Tennessee now have a vacated injunction and an appellate mandate behind them.