Sixth Circuit preemption ruling emboldens states against Kalshi

The Sixth Circuit Court of Appeals handed Ohio and Tennessee a ruling in September that their laws could treat sports event contracts as gambling. That single sentence has done more to reshape the prediction market legal landscape than any amount of Washington lobbying, and the industry's response — accelerating its influence campaign rather than its legal theory — tells you something about where the operators think their real exposure lies.

The Demand Progress report released this week puts a number on it: Kalshi spent $1.8 million on lobbying in the first half of 2026 alone, against $615,000 for all of 2025. That is not a rounding error. That is a company that watched the Sixth Circuit ruling land and decided the problem was political, not doctrinal.

I understand the instinct. When courts start moving against you, the floor of Congress looks like a better place to stand. But the lobbying operation and the legal theory are solving different problems, and right now the legal theory has a hole in it that former White House staff cannot close.

The hole is preemption. Kalshi's core argument — that CFTC designation under the Commodity Exchange Act displaces state gambling laws — has taken two significant hits in the last several months. Judge McMahon in the Southern District of New York concluded that Novig's sports contracts are not swaps under the CEA, which means the federal preemption framework never attaches in the first place. The Sixth Circuit, separately, let Ohio and Tennessee proceed on the same basic theory. Neither ruling says the CFTC lacks authority over prediction markets generally. Both rulings say that sports event contracts, specifically, may not be what the operators have been claiming they are.

This distinction matters structurally. The preemption argument works if and only if the contracts are validly classified as swaps or excluded from the gambling definition under the CEA. If courts keep concluding they are not, then the state enforcement actions in Arkansas, Louisiana, Kentucky, Missouri, and Texas are not procedural irritants — they are legally sustainable on their own terms. The operators are not being harassed by outlier regulators. They are facing a coherent legal theory that is accumulating wins.

The lobbying campaign can produce a legislative fix — a statutory clarification that CFTC-designated event contracts are expressly preempted — but that requires a bill, a floor vote, and a Senate with other things on its mind. Former Rep. Patrick McHenry as senior adviser to the Coalition for Prediction Markets is valuable if the House Financial Services Committee moves legislation. It is decorative if it doesn't.

Meanwhile the CFTC, which is supposed to be the industry's federal shield, is simultaneously investigating whether Kalshi properly notified it about contract filings. A regulator investigating the company that is relying on that regulator's jurisdiction to defeat state enforcement is not an impossible situation, but it is an uncomfortable one. The CEA's self-certification regime under 7 U.S.C. § 7a-3 requires designated contract markets to notify the Commission of new contracts before listing them. Kalshi's response — that the probe concerns a limited number of submissions, many never launched — is the kind of answer that closes an investigation if the documentation holds.

The legal standard that now governs the states' position is the one the Sixth Circuit applied: whether a contract falls within the CEA's swap definition and whether CFTC designation is sufficient to displace the state's police power over gambling. Courts in New York have now answered the second question, and the answer has not favored the industry.