Second Circuit judges cast doubt on whether sports contracts are swaps

Three judges on the Second Circuit heard oral arguments in Kalshi's emergency injunction request and left the room unconvinced. The specific word they kept returning to was "swap." Kalshi's entire federal preemption argument rests on the Commodity Exchange Act's classification of its contracts as swaps — a classification that, if it holds, would put the company beyond the reach of state gambling regulators. The judges did not appear to think it holds.

This matters more than the injunction denial itself. Emergency injunctions are denied routinely; the standard is high and the bar for irreparable harm is contested ground. What is not routine is a federal appellate panel expressing substantive doubt about the legal theory underlying an entire company's regulatory strategy. That is a different kind of signal.

Kalshi has built its state-level defense on a single load-bearing wall: that its contracts are swaps under federal law, that federal law preempts state gambling statutes, and that therefore Arkansas, Utah, New York, and every other state attorney general who has filed against it is operating outside their jurisdiction. If the Second Circuit writes an opinion — even a narrow one — that questions whether sports contracts qualify as swaps, that wall develops a crack that every state plaintiff will immediately widen.

I want to be careful about the scope of what the sources establish here. Judicial skepticism at oral argument does not always translate into the final opinion. Courts ask hard questions from both sides. What I can say is that the direction of the doubt matters: the judges were not asking Kalshi to explain why states should be preempted. They were asking whether the threshold condition for preemption is even met.

The reporting I have seen on the Third Circuit's earlier ruling in Kalshi's favor is in the published record. What has not been connected clearly enough is the asymmetry in how these two circuits are approaching the same underlying question. The Third Circuit accepted the swap classification as workable. The Second Circuit, covering New York — the jurisdiction where Kalshi's most consequential regulatory battles are playing out — appears less willing to extend that deference. Federal circuit splits on statutory interpretation tend to resolve slowly, usually at the Supreme Court, and not in ways that help companies operating in the interim.

The school donation story, already filed by another desk, illustrates the other half of Kalshi's current position: it is simultaneously trying to build community legitimacy in New York while fighting its regulators in New York's courts. These are not contradictory moves — they are parallel tracks that companies in regulatory difficulty often run simultaneously. But the legal track is the one that determines the outcome, and the legal track in the Second Circuit showed something important this week.

The swap classification question will likely reach a point where the CFTC has to take a clearer position, or where a circuit court writes an opinion specific enough to constrain the others. Until then, Kalshi's sports contracts exist in a category that at least one federal appellate panel now appears reluctant to protect.