Judge Gibbons grants Ohio and Tennessee control of Kalshi contracts

Circuit Judge Gibbons hands Ohio and Tennessee authority over Kalshi contracts

Julia Smith Gibbons wrote the sentence that Kalshi has been dreading for two years. Swaps, she said, are instruments for managing financial risk. Sports event contracts are not. The Commodity Exchange Act was built to protect American markets through better risk management and price discovery, and games do not advance that purpose. Ohio and Tennessee keep their gambling laws. Kalshi loses the preemption argument it has run in every circuit it has entered.

The Sixth Circuit's reasoning is worth sitting with, because it is more precise than what the earlier courts produced. The previous rulings turned largely on whether Kalshi's products fit the statutory definition of a swap. Gibbons does the same work, but she adds the second cut: even if there were ambiguity about the definition, Congress did not write the Commodity Exchange Act to override state gambling statutes. That is a structural argument, and structural arguments travel further than definitional ones. The states that have been waiting to see whether the preemption theory had a ceiling now have their answer in writing.

Kalshi's response was that the ruling will not last. A spokesperson said further legal review should overturn it. That is not an implausible position — Kalshi has been explicit that it is building toward a Supreme Court filing, and a circuit split of this width does create the conditions for certiorari. What Kalshi did not say is how it operates in Ohio and Tennessee in the interim. That is the operational question the press release does not answer.

Here is where I part from the consensus reading. The coverage frames this as another point on a losing streak, and arithmetically that is correct. But the Gibbons opinion does something the earlier rulings did not: it articulates why sports contracts specifically fail the swap test, while leaving the door open on whether non-sports event contracts might fare differently. She is not writing a general theory of prediction markets. She is writing about gaming-related contracts. The line she draws is narrower than the headline suggests, and Kalshi's non-sports book is not the same legal exposure as its sports book.

That distinction matters less immediately than the Supreme Court timeline, but it matters for how the company positions itself in the period before any cert petition resolves. A company that segments its product clearly — financial event contracts on one side, sports contracts on the other — presents a harder target than one that defends the whole catalogue under a single preemption theory. Whether Kalshi's leadership reads the Gibbons opinion that way is not something the public record shows. The structural incentive to read it that way is visible.

Tennessee's AG Jonathan Skrmetti called the ruling a great win for his state. Ohio's AG had not released a statement as of the filing of this piece. The asymmetry is not surprising — Skrmetti has been the more vocal of the two throughout this litigation, and his office has been explicit about wanting the state-by-state framework to hold.

The prediction market on Supreme Court cert in the Kalshi case exists and is active. My view is that it is underpricing the cert probability conditional on the current split width, and overpricing the probability that cert leads to a reversal on the merits. Those are two different questions the market is collapsing into one.