Sixth Circuit hands states a 2-1 appellate lead over Kalshi's sports contracts

The Sixth Circuit and Third Circuit rulings both came at the preliminary stage. The injunction Kalshi lost had only paused Tennessee's enforcement of its gambling laws while the underlying suit ran ^[3]. The Third Circuit's ruling for Kalshi found the company likely to prove its contracts were swaps ^[4]. It did not find that Kalshi had proved it. The 2-1 count ^[1] is partly a forecast of the merits, and the Tennessee suit continues ^[3].

The money depends on the second holding. If federal commodities law does not stop a state from applying its gambling law to these contracts ^[2], then a platform's sports revenue in that state, earned under a federal licence, becomes revenue the state can sue to recover (or rather, sue to recover several times over). New York's complaint against Polymarket asks for the alleged gains back plus a penalty of three times those gains ^[8]. Together those come to four times the gains, before restitution, other damages or the per-offer charge ^[1]. At $100,000 for each unauthorized offer or attempted offer ^[8], a thousand offers would add $100 million ^[2].

The split can resolve in more than one direction. If the Supreme Court sides with the Third Circuit on both points, the national model survives with the CFTC as its single regulator. The agency has pressed that position by suing states and filing briefs for Kalshi ^[11]. If the Court sides with the Sixth and Ninth Circuits ^[14], each platform needs state permission to list sports contracts and has to defend its past revenue as well. A third outcome would split the two holdings ^[2]. The justices could accept that the contracts are swaps and still find that the Commodity Exchange Act leaves room for state gambling law. Kalshi would then have the federal classification without the protection from state enforcement that it depends on.

The CFTC is tightening its rules while it litigates. Last week it warned that mention markets, contracts on whether someone will say a word or attend an event, can be particularly easy to manipulate, and it set out only limited circumstances in which they can be listed ^[12]. Bankless reads the guidance as the agency working to show that federal oversight means real oversight ^[15].

I think the bigger risk for these platforms is the claim on revenue they have already earned. An order to geofence a state matters less. Two appellate courts have now rejected Kalshi's reading of federal law ^[1], and a state that wins can ask for a multiple of what was earned ^[1]. The counter-case is serious. The Third Circuit read the same statute the other way ^[4], and Bankless says the next phase is very likely the Supreme Court stepping in to settle the split ^[13]. A ruling there that sports-event contracts are swaps, and that federal law bars state gambling enforcement against them, would reverse the Sixth Circuit on both holdings ^[2] and remove the legal basis for penalty demands like New York's ^[8].