A federal appeals court has dealt another setback to Kalshi’s effort to shield its sports-event contracts from state gambling enforcement, ruling that Tennessee can move forward while the broader case continues. The Sixth Circuit lifted a preliminary injunction that had temporarily blocked the state from applying its gambling laws against the company.

The decision adds to a growing split among U.S. appellate courts over whether federally overseen prediction-market products can bypass state gambling rules. With the Sixth Circuit now aligned against Kalshi and the Third Circuit taking the opposite view earlier this year, pressure is building for the Supreme Court to step in.

Court rejects two core parts of Kalshi’s argument

The Sixth Circuit’s ruling cuts against both pillars of Kalshi’s national sports-market strategy. According to the decision, the company’s sports-event contracts are unlikely to qualify as “swaps” under the Commodity Exchange Act, undermining Kalshi’s claim that the products belong exclusively within the federal commodities framework.

The court also rejected the argument that federal commodities law automatically prevents Tennessee from enforcing its own gambling laws. The injunction had paused that enforcement while the lawsuit played out, but removing it means the state is no longer blocked on that basis during the case.

Appellate split grows more significant

The latest ruling leaves the appellate tally at 2-1 against Kalshi’s preemption theory. The Sixth Circuit now joins the Ninth Circuit in declining to treat CFTC oversight as enough, by itself, to displace state gambling authority over sports markets.

That stands in contrast to a Third Circuit ruling from earlier in 2026, where Kalshi prevailed on a preliminary basis. In that case, the court concluded the company was likely to show that its sports contracts were swaps and that federal law preempted New Jersey’s attempt to enforce state gambling restrictions.

Ninth Circuit tribal case adds another layer

The legal landscape became more complicated again this month in a separate Ninth Circuit dispute involving California tribes Blue Lake Rancheria and Chicken Ranch Rancheria. The tribes sued Kalshi and Robinhood, arguing that Kalshi’s sports contracts amounted to unauthorized gaming on tribal lands.

In that case, the Ninth Circuit said the tribes were likely to succeed under the Indian Gaming Regulatory Act, the federal statute governing gaming on tribal lands. That result introduced a different kind of conflict: not only state law versus federal commodities law, but also a clash between two federal regulatory systems, with one not necessarily wiping out the other.

States and the CFTC are pushing in opposite directions

The Commodity Futures Trading Commission has continued to argue that Congress gave it exclusive authority over federally regulated prediction markets. It has sued states and filed briefs supporting Kalshi when local regulators moved to apply state gambling laws to sports-event contracts.

At the same time, the agency has also been signaling that federal oversight will be active rather than hands-off. Last week, the CFTC issued guidance on so-called “mention markets,” warning that contracts tied to whether a person says a certain word, attends an event, or interacts with someone else can be especially vulnerable to manipulation and should be listed only in limited circumstances.

Financial stakes rise as Supreme Court review looms

The legal fight is not only about whether states can block future offerings. Bankless noted that New York last week formally sued Polymarket for allegedly offering unlicensed sports wagering, including claims that users aged 18 to 20 were able to wager even though New York requires sports bettors to be 21. The state is seeking allegedly illegal gains, restitution and other damages, a penalty equal to three times those gains, and $100,000 for each unauthorized offer or attempted offer of sports wagering.

A similar penalty structure was brought against Kalshi in July and against Coinbase and Gemini in April, highlighting the potential exposure if states succeed in these cases. The next confirmed step may come from the Supreme Court, which has already been asked to review multiple related rulings: New Jersey filed a petition on Sept. 2 after losing in the Third Circuit, Robinhood followed on Sept. 10 seeking review of an adverse Ninth Circuit ruling, and Crypto.com filed its own petition on Sept. 11 in a separate Ninth Circuit loss against Nevada. The Court has not yet agreed to hear any of them.

Source: www.bankless.com