The Sixth Circuit Court of Appeals on Monday handed Tennessee a victory in the lawsuit brought by Kalshi, the prediction market company that sued the Volunteer State earlier this year, claiming the Tennessee Sports Wagering Council (TSWC) does not have the authority to regulate its predictions.
“This is a great win for Tennessee,” stated Tennessee Attorney General Jonathan Skrmetti. “Kalshi attempted an end run around Tennessee law to avoid any of the rules or taxes associated with sports gambling. They failed.”
Skrmetti added, “Sports wagering is heavily regulated because it can do a lot of harm, and I’m glad we thwarted Kalshi’s efforts to remove every safeguard and put Tennessee sports bettors at risk. I’m proud of our outstanding team for defending Tennessee’s right to set its own rules.”
Kalshi filed its lawsuit after Tennessee regulators began scrutinizing the sports-event contracts the company began offering to Tennessee users of its prediction market last year, arguing that a contract on its platform is actually a “swap,” which can only be regulated by the U.S. Commodity Futures Trading Commission (CFTC).
The Sixth Circuit decision vacates the preliminary injunction issued in February by U.S. District Judge Aleta Trauger, an appointee of former President Bill Clinton who ruled in favor of the company, agreeing that its sports-event contracts were swaps that should be regulated federally.
“Kalshi’s reading would give the CFTC jurisdiction over event contracts that bear no relation to the goals Congress had in mind,” wrote the panel of judges in their decision.
They later added, “Kalshi’s proposed ‘interpretation of the statute would’ also ‘attach criminal penalties to a breathtaking amount of commonplace [gambling] activity.’”
Additionally, while the court rejected Kalshi’s argument that its sports-event contracts are federally regulated swaps, the Sixth Circuit also held that even if the contracts were considered swaps, federal commodities law would not preempt Tennessee’s gambling laws because those laws regulate sports betting rather than the licensing or operation of federally regulated derivatives markets.
The panel that authored the decision included U.S. Appellate Judge Eric Clay, who was appointed by Clinton, Senior Appellate Judge Julia Smith Gibbons, who was appointed by former President Ronald Reagan, and Appellate Judge Rachel Bloomekatz, who was appointed by President Donald Trump.
Prediction markets grew in prominence during the 2024 election cycle, when they correctly predicted many races. A study at Vanderbilt University found Kalshi’s election outcome markets predicted outcomes 78 percent of the time. The company’s prediction outcomes ranked ahead of Polymarket, where 67 percent of election predictions aligned with outcomes, but behind PredictIt, where 93 percent of election predictions matched outcomes.
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Tom Pappert is a 2025 recipient of the Dao Prize and the lead reporter for The Tennessee Star. He also reports for the Star News Network. Follow Tom on X. Email tips to [email protected].
Photo “Kalshi Logo” by Kalshi.
