Sixth Circuit swap ruling deepens federal split on prediction markets

Rob Schwartz called it a litigation mess. He is a former CFTC general counsel, now in private practice, and he used that phrase in front of a room full of people who spend their days in it — so the description carried weight. He was speaking Tuesday at Predict 2026 in New York, moderating a panel on who actually controls prediction markets, and the honest answer he and his colleagues arrived at is: nobody knows yet, and the courts are not converging.

The Sixth Circuit's ruling that Kalshi's sports-event contracts are not "swaps" and that the Commodity Exchange Act does not preempt state gambling laws is the finding that matters here. It runs directly counter to the logic Judge Pacold applied in Illinois, where swap classification was the load-bearing wall of federal preemption. Two federal circuits, two opposite conclusions, one product. That is a circuit split in the formal sense, and it is the kind of split the Supreme Court was designed to resolve.

CFTC General Counsel Tyler Badgley laid out what the agency is now managing: four simultaneous fronts. Designated Contract Markets suing states to halt enforcement. States filing their own actions, including criminal indictments — the Arizona attorney general's twenty-count case against Kalshi remains frozen under a federal restraining order, waiting on the same legal question the circuits cannot agree on. The CFTC itself seeking injunctions against state enforcement. And then everything that doesn't fit the first three: tribal gaming claims, class actions, regulators in other jurisdictions watching to see which framework survives.

The conventional read is that federal preemption eventually wins — that CFTC designation is too deep a structural commitment for Congress to walk back, and that sports contracts launched under that framework will be grandfathered into whatever settlement the courts reach. I don't think the circuit split supports that confidence. The Sixth Circuit's reasoning is not a narrow procedural objection. It goes to the definitional core: what these contracts are. If they are not swaps, the entire preemption architecture rests on nothing. And Arizona's criminal case, currently frozen, is waiting for exactly that question to be answered with finality.

Schwartz reached back to Joseph de la Vega's description of the Amsterdam exchange in 1688 — traders as "skillful gamblers," derivatives as both game and hedge — not as decoration but as a reminder that this argument is older than any of the regulatory frameworks trying to contain it. The exchange survived. The jurisdictional fight has no guaranteed winner.

Prediction markets tracking Supreme Court certiorari on this question exist, and the Sixth Circuit's ruling just made that outcome harder to dismiss. A split this clean, between circuits with jurisdiction over major commercial centers, is the mechanism by which the Court is typically pulled in. What the Illinois ruling left open, the Sixth Circuit has now answered differently — and that difference is now a matter of record.