Federal Courts Are Splitting on Whether Prediction Markets Are Federally Protected. The Ohio Ruling Is the Latest Evidence.
By De Silva Law Offices, LLC | March 10, 2026
A federal court in Ohio ruled on March 9, 2026, that the prediction market platform Kalshi must comply with state sports gambling laws. The ruling is one sentence of a much longer story. It sits inside a growing body of conflicting federal decisions on a question that has no clear answer yet: whether a company licensed by the federal Commodity Futures Trading Commission (CFTC) can offer sports-related contracts to consumers nationwide without obtaining a license from each state where it operates. Courts are answering that question differently. Clients operating in or adjacent to prediction markets should understand why.
What an Event Contract Is, and Why the Definition Matters
An event contract is a binary financial instrument. The buyer takes a position on whether a specified future event will occur, pays a price for that position, and receives a fixed payout if correct. If the prediction is wrong, the buyer loses the amount paid. Kalshi offers these contracts on outcomes that include economic indicators, elections, and sports competitions. The contracts trade on Kalshi's platform, which the CFTC has registered as a Designated Contract Market (DCM).
The CFTC is the federal agency that regulates derivatives markets under the Commodity Exchange Act (CEA). A DCM is an exchange that has satisfied the CFTC's regulatory requirements and is authorized to self-certify and list contracts for trading. Kalshi argues, in every case it has litigated, that its DCM registration places it within the exclusive jurisdiction of the CFTC and beyond the reach of state gambling regulators. The states disagree. So do some courts.
The legal classification of event contracts as financial instruments versus gambling products is not a new tension. We traced its origins in our earlier analysis of binary payoffs and the federal-state regulatory boundary. The Ohio decision is the most recent chapter in that dispute.
What the Ohio Court Held
Chief U.S. District Judge Sarah D. Morrison of the Southern District of Ohio denied Kalshi's request for a preliminary injunction. A preliminary injunction is an emergency court order that halts enforcement activity while litigation proceeds on the merits. The standard for obtaining one is demanding. The requesting party must show, among other things, a likelihood of success on the underlying legal claims.
Kalshi sought to block the Ohio Casino Control Commission from enforcing state gambling laws against its sports contracts. The Commission had characterized Kalshi as an unlicensed sportsbook. Kalshi's response was a federal preemption argument.
Preemption is a constitutional doctrine rooted in the Supremacy Clause of the U.S. Constitution. It holds that federal law displaces state law in areas where Congress has asserted exclusive regulatory authority. The strongest form is field preemption, which applies when Congress has so comprehensively regulated a subject that it has left no room for state law to operate alongside it. Kalshi argued that the CEA field-preempts Ohio's sports gambling statutes because Congress granted the CFTC exclusive jurisdiction over derivatives traded on DCMs.
Judge Morrison rejected that argument. Her opinion concluded that "history reveals no evidence that Congress intended to preempt state sports gambling laws." She also found that Kalshi had not demonstrated, at this stage of the case, that its contracts qualify as swaps under the CEA. A swap is a derivative contract in which parties exchange cash flows based on a reference rate, asset price, or event outcome. Whether a sports event contract meets that statutory definition is a contested question the Ohio court declined to resolve in Kalshi's favor.
The ruling allows Ohio regulators to continue enforcing state law against Kalshi while the case moves forward. Kalshi has announced it will appeal.
The Split With Tennessee
The Ohio decision directly contradicts a ruling issued just weeks earlier in Tennessee. There, a federal judge granted Kalshi a preliminary injunction, found that the sports contracts are likely swaps under the CEA, and concluded that federal law likely preempts state regulation. The two courts reviewed the same statute and reached opposite conclusions.
This is not a minor doctrinal disagreement. Ohio held that Congress did not intend to displace state sports gambling authority. Tennessee held the opposite. Both rulings are at the preliminary injunction stage, which means they reflect assessments of likelihood of success rather than final judgments. But the divergence is real and it is widening.
The same day as the Ohio decision, the New York Attorney General's Office filed the ruling as supplemental authority in its own pending case against Kalshi in federal court in Manhattan. State regulators are coordinating. Each ruling against Kalshi becomes a tool in the next state's litigation. Each ruling in Kalshi's favor becomes a target for factual distinction.
We covered the institutional dynamics driving this coordination in our analysis of the CFTC's amicus brief in the Ninth Circuit, where the Commission staked out its position that exclusive federal jurisdiction over DCM-traded instruments leaves no room for state enforcement. The Ohio court effectively rejected that position at the preliminary injunction stage.
What Congress Intended, and Why That Question Is Hard
The preemption analysis in every Kalshi case turns on legislative history. Courts that have sided with Kalshi emphasize the plain text of the CEA's exclusive jurisdiction grant and the structural incompatibility of 50 different state licensing regimes applied to a single federally registered exchange. Courts that have sided with the states emphasize that Congress has never said it intended to displace state gambling authority, that the CEA's savings clauses preserve significant space for state law, and that sports betting regulation has historically been a state function.
Neither reading is frivolous. That is precisely why this litigation is spreading to circuit courts and why the outcome may ultimately require Supreme Court resolution or congressional intervention.
The CLARITY Act, which we have analyzed across a dedicated three-part series on this site, would resolve this dispute by statute. It would establish an explicit federal framework for event contracts and clarify the line between CFTC-regulated instruments and state-regulated gambling. Whether that legislation advances may now depend, in part, on how much judicial disorder the current cases produce first.
The Practical Implications
For clients that operate, invest in, or partner with prediction market platforms, the Ohio ruling is a reminder that a federal license does not guarantee freedom from state enforcement. The scope of CFTC jurisdiction over sports event contracts remains genuinely unsettled. District courts have granted and denied injunctions on the same facts under the same statute. Until an appellate court issues a definitive opinion, or until Congress acts, that uncertainty is not going away.
For intermediaries such as banks, brokers, and technology providers that support prediction market platforms, the state enforcement risk is not theoretical. Ohio expressly warned licensed sportsbooks that partnering with Kalshi could jeopardize their state gaming licenses, regardless of whether the partnership involved Ohio customers. That kind of indirect regulatory pressure on counterparties and vendors deserves attention in any compliance analysis of the sector.
De Silva Law Offices advises exchanges, intermediaries, and fintech companies navigating regulatory developments in event contracts and prediction markets. For prior analysis in this series, see our articles on sports event contracts and binary payoffs, the CFTC Innovation Advisory Committee, and federal preemption in state derivatives regulation. If you have questions about how these developments affect your operations or compliance obligations, pleasecontact us.
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