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A US appeals court on Friday ruled against the prediction markets operator Kalshi, \u200csaying Ohio and Tennessee can regulate its so-called event contracts under their gambling laws.<\/p>\n
The decision by the 6th US Circuit Court of Appeals in Cincinnati deepens a split among federal appeals courts over whether state regulators or the federal Commodity Futures Trading Commission should have authority to regulate the fast-growing industry. This raises the potential that the US Supreme \u200bCourt may decide to settle the matter.<\/p>\n
Kalshi said it does not expect the decision to survive further legal review. \u201cThe ruling shows exactly why \u200ba state-by-state patchwork doesn\u2019t work,\u201d Kalshi spokesperson Dani Lever said. \u201cMarkets can\u2019t operate when the rules change at every state line, \u2060which is why Congress created a single federal regulator with nationwide rules.\u201d<\/p>\n
Prediction markets are best known for letting people wager on the outcomes of sports \u200bevents, though people can also wager on a wide variety of subjects including elections, the weather and cultural events such as the Oscars.<\/p>\n
Circuit Judge Julia Smith \u200bGibbons wrote for a unanimous three-judge panel that Kalshi did not show its sports event contracts were \u201cswaps\u201d that should be regulated exclusively by the CFTC. She also said the federal Commodity Exchange Act did not preempt Ohio\u2019s or Tennessee\u2019s gambling laws.<\/p>\n
Many states including Ohio and Tennessee, which are both Republican-controlled, have sought to crack down on prediction markets such as \u200bKalshi and Polymarket, putting them at odds with Republican President Donald Trump\u2019s administration, as well as the CFTC.<\/p>\n
Two other federal appeals courts have addressed the same issues.<\/p>\n
The 9th \u200bCircuit in San Francisco said last month that Kalshi\u2019s event contracts are subject to Nevada\u2019s gambling laws, while the 3rd Circuit in Philadelphia said in April that Kalshi\u2019s contracts \u200care not \u2060subject to New Jersey\u2019s gambling laws. New Jersey has asked the Supreme Court to overturn the 3rd Circuit decision.<\/p>\n
PREDICTING CORNER KICKS ISN\u2019T SWAPS<\/strong><\/p>\n Gibbons said \u201cswaps\u201d generally refer to financial measures, indices and instruments that people use when hedging against risks, rather than gaming-related contracts.<\/p>\n Gambling regulation \u201clies at the heart of the state\u2019s police power,\u201d she said, and Congress has given states primary responsibility to decide what forms of gambling can take place within their borders.<\/p>\n The judge also said the Commodity Exchange Act\u2019s \u201ccore \u200bpurpose\u201d was to protect the national interest \u200bby providing a means to \u2060manage and assume risk, and to obtain pricing information.<\/p>\n \u201cIt is, therefore, difficult to see how determining the probability that a certain number of corner kicks will be taken in a given soccer game \u2014 or that a 30-leg parlay will \u200bhit \u2014 would serve (to) advance those goals,\u201d Gibbons wrote.<\/p>\n Friday\u2019s decision vacated a preliminary injunction issued by a Tennessee federal judge \u200bagainst enforcement of \u2060that state\u2019s gambling laws, and upheld the denial of a similar injunction against Ohio by a federal judge in that state.<\/p>\n Tennessee Attorney General Jonathan Skrmetti called the decision a \u201cgreat win\u201d for his state. \u201cSports wagering is heavily regulated because it can do a lot of harm, and I\u2019m glad we thwarted Kalshi\u2019s efforts to remove every \u2060safeguard and \u200bput Tennessee sports bettors at risk,\u201d he said.<\/p>\n The office of Ohio Attorney General Andy Wilson did \u200bnot immediately respond to requests for comment.<\/p>\n Gibbons was appointed to the appeals court by Republican President George W. Bush. The panel also included Circuit Judges Eric Clay and Rachel Bloomekatz, appointed respectively \u200bby Democratic Presidents Bill Clinton and Joe Biden.<\/p>\n<\/div>\n