The Sixth U.S. Circuit Court of Appeals in Cincinnati dealt a significant blow to the prediction markets industry on Friday with a ruling against Kalshi.
The court ruled that Ohio and Tennessee can apply their existing gambling laws to Kalshi’s sports-related event contracts, a decision with broad implications.
The ruling represents another legal setback for an industry that has been fighting to establish itself outside traditional gambling regulatory frameworks across the United States.
Kalshi, one of the most prominent prediction-market operators in the country, had challenged the states’ authority to regulate its contracts under gambling statutes.
The case centered on whether sports-related event contracts fall under state gambling laws or whether federal commodity trading rules should take precedence over state oversight.
Friday’s decision suggests that state-level gambling regulators retain meaningful authority over prediction market products, at least in certain jurisdictions within the Sixth Circuit.
The ruling has drawn attention to publicly traded companies with exposure to both prediction markets and sports betting, including Robinhood Markets (HOOD) and Flutter Entertainment (FLUT).
Robinhood, which has been expanding into prediction markets as part of its broader push into new financial products, saw its shares move in response to the news.
DraftKings (DKNG) and Flutter Entertainment, two of the largest players in the regulated sports-betting industry, were also in focus as investors assessed what the ruling could mean for competitors in adjacent markets.
Traditional sports-betting operators could stand to benefit if prediction market platforms face tighter restrictions, since it would reduce competition from an emerging and largely unregulated alternative.
The prediction markets industry had gained momentum in recent years, attracting significant user interest and investor attention as platforms offered contracts on everything from election outcomes to sports results.
Legal uncertainty has been a persistent challenge for the sector, as operators have faced a patchwork of state and federal rules that vary significantly across jurisdictions.
The Sixth Circuit’s decision adds to a growing body of case law that could shape how prediction markets are allowed to operate throughout the United States going forward.
Investors and industry observers will now be watching closely to see whether Kalshi pursues further appeals or whether other operators adjust their strategies in response to the ruling.
