Sixth Circuit's swing vote leaves Kalshi's swap argument exposed

Three circuit courts have now ruled on whether sports event contracts qualify as swaps under the Commodity Exchange Act, and they have produced three different answers. The Third Circuit said yes, they are swaps, and federal law preempts state gaming rules. The Ninth Circuit said they are probably not swaps at all. The Sixth Circuit landed in the strangest place of the three: yes, they are swaps, but state gaming law applies anyway.

That third position is the one worth sitting with. Kalshi's litigation strategy has rested on a two-step argument — swaps classification, then federal preemption — where each step depends on the previous one holding. The Sixth Circuit accepted step one and rejected step two. If that logic travels to the Supreme Court, Kalshi wins the definitional fight and loses the war it is actually fighting. The swap label becomes a classification with no operational consequence.

Javalin Dedaj, Kalshi's head of litigation, told a panel at the Next Predict Summit in New York on Friday that the company's position has always been that trading on a designated contract market should answer only to the CFTC. The logic is clean enough in the abstract. The problem is that three federal appellate courts, looking at the same statute, have now produced three readings, and one of them explicitly decouples the swap finding from the preemption outcome. That is not a legal environment Kalshi can operate in with confidence. It is a legal environment in which any state that wants to press the issue has a published federal opinion to stand behind.

The CFTC's proposed rule — which would expressly define sports, political, cultural, and weather contracts as swaps — was always the cleaner path to resolution than the litigation itself. A rule with that definition in it would at least collapse the first question, the classification question, into something stable. Whether it also resolves preemption is a different matter, and the Sixth Circuit's reasoning suggests it would not automatically do so.

Kalshi's November 9 brief at the Supreme Court is the immediate pressure point. New Jersey is asking the Court to take up the Third Circuit case. Whether four justices see a circuit split worth resolving is genuinely open — the Ninth Circuit's reasoning that these contracts probably are not swaps creates one kind of split; the Sixth Circuit's reasoning that even swaps can be regulated by states creates another. Both cannot be resolved by the same doctrinal move.

The states' coalition has been consistent throughout: when money goes down on a sporting event, that is sports betting under state law, whatever the federal classification says. That argument has now survived contact with two different circuit courts through two different routes, which means it is no longer a political position dressed up as a legal one. At least in the Sixth and Ninth Circuits, it is a legal position that has held.

Prediction market operators at the Summit suggested they are prepared to adapt if the Supreme Court sides with the states. What adaptation looks like in practice — state-by-state licensing across a product that was designed to be national — is the structural problem that has no clean answer in any of the briefs filed so far.