Kalshi Loses at the Sixth Circuit: Why Prediction Markets Still Win Against Sportsbooks

The Sixth Circuit has given Ohio and Tennessee the right to regulate sports event contracts, which makes a Supreme Court case close to certain. Kalshi's more important result came in North Carolina's budget, where it secured a 6% tax on its fees. That is the model for how this ends.

Kalshi lost again in a federal appeals court on Friday, but the ruling may matter less than it looks. A unanimous Sixth Circuit panel held that Ohio and Tennessee can apply their gambling laws to Kalshi's sports event contracts. It lifted an injunction that had protected Kalshi in Tennessee and upheld the refusal of one in Ohio, Reuters reported. The ruling makes Supreme Court review close to certain. North Carolina's budget offers a more useful guide to where this goes: lawmakers imposed a 6% tax on prediction-market trading fees on page 626, shortly after meeting Kalshi's lobbyists. States will win the jurisdiction question. Prediction markets will win the economics.

What the court decided

Judge Julia Smith Gibbons, writing for a panel of appointees of both parties, rejected Kalshi's central argument that its contracts are "swaps" under the exclusive jurisdiction of the Commodity Futures Trading Commission. Swaps, she wrote, are tools for hedging financial risk. It was "difficult to see" how the likely number of corner kicks in a soccer game, or whether "a 30-leg parlay will hit," served the purposes of the Commodity Exchange Act. The panel added that even if the contracts were swaps, the federal statute does not preempt state gambling law.

The circuits are now split two to one. The Ninth Circuit ruled against Kalshi on Nevada's law last month. The Third Circuit sided with it on New Jersey's law in April, and New Jersey has asked the Supreme Court to reverse that decision. The Fourth Circuit still has Maryland's case. District courts are no more consistent: on the same Friday a federal judge in Arizona, Michael Liburdi, temporarily blocked the state from prosecuting Kalshi on 20 misdemeanour gambling charges filed earlier in the week. Kalshi says it does not expect Friday's ruling "to survive further legal review" and that a "state-by-state patchwork doesn't work."

Where the money is going

The sportsbook industry has put numbers on its complaint. The American Gaming Association estimates that sports event contracts have diverted more than $500 million in potential sports-betting tax revenue from states. That compares with $3.71 billion collected from licensed sportsbooks in 2025, on $166.9 billion of legal wagers, according to the AGA's revenue report. In other words, the lost revenue is already about a seventh of what the legal market produces.

Customer behaviour is moving faster than the courts. In a September survey by the analytics firm Fullstory, 35% of U.S. bettors said they now use sportsbooks less because of prediction markets, Fortune reported. Trust and ease of use ranked above odds as reasons for choosing a platform. Kalshi and Polymarket have each been valued at more than $20 billion in recent funding rounds. On Thursday New York sued Polymarket as an unlicensed gambling operation.

A court loss does not settle the market

The appeals rulings give states a legal right to regulate Kalshi, but not a revenue stream. A state that wins can shut Kalshi out, but its residents do not go back to licensed sportsbooks just because the prediction market disappears from the app store. Some will. Others move to offshore sites, and the tax revenue is lost either way. A legislature facing a budget gap wants the revenue more than the ban.

North Carolina shows what states can gain. According to Bloomberg, the 6% levy on trading fees was added to the budget the day before the vote, shortly after staff for House Speaker Destin Hall met Kalshi's lobbyists. The tax gives the state money and gives Kalshi recognition in state law. More importantly, it sets the tax base in Kalshi's favour.

The arithmetic shows why. Ohio taxes sportsbooks at 20% of gross gaming revenue. Sportsbooks keep about 10% of what is wagered, so a $100 bet in Ohio yields roughly $2 for the state. A 6% tax on exchange fees, on $100 of contracts that might carry a dollar or two in fees, yields about ten cents. That is a difference of around twenty times on the same wager. If other states follow North Carolina, prediction markets will be legal, taxed and still much cheaper to run than a licensed sportsbook.

What the sportsbooks are counting on

The best argument for the incumbents is that the Supreme Court sides with the states and state regulators then require full gaming licences, age checks and tax rates matching those on sportsbooks. The Sixth Circuit's language supports that outcome. Gibbons wrote that gambling regulation "lies at the heart of the state's police power." The Ninth Circuit and Sixth Circuit, together covering a large share of the country, now agree.

That argument misreads the incentives and the product. States with high sportsbook tax rates need the licensed operators to stay competitive, and a prediction-market ban only works where offshore alternatives are weak. The sportsbooks have also hedged. DraftKings Predictions and FanDuel Predicts are live in states where their own sportsbooks are not licensed. The incumbents are building the product they are asking courts to restrict, which suggests they expect a long period in which both models operate side by side, with prediction markets growing faster.

Federal policy points the same way. The CFTC and the Trump administration have backed the prediction markets against Republican attorneys general in Ohio and Tennessee. A Supreme Court win for the states would push the fight back to Congress, where the prediction-market lobby is now well funded.

What happens next

We expect the Supreme Court to grant New Jersey's petition before the end of January 2027 and decide the preemption question by the end of its term in June. The Fourth Circuit's Maryland ruling will probably come first and will not change the outcome. Before the justices rule, at least three more states should pass fee-based or handle-based taxes modelled on North Carolina's in their 2027 sessions. Each one gives Kalshi recognition under state law that will be hard to reverse, whatever the Court decides about the Commodity Exchange Act.

For DraftKings and Flutter shareholders, the ruling buys time without changing the direction. The licence was the moat. North Carolina has shown how a well-funded challenger can get across it for a small fraction of what the incumbents paid.