Prediction Markets: Sixth Circuit Backs Tennessee, CFTC Moves

A federal appeals court has sided with Tennessee in a high-profile fight over prediction markets, and the CFTC has sent two proposed rules affecting event contracts to the White House for review. Together, the developments could shape how sports-related contracts are regulated in the United States.

Prediction Market Regulation: What Happened

The short answer: the US Court of Appeals for the Sixth Circuit ruled in favor of Tennessee, reversing a lower court decision in a case involving Kalshi, which began offering event contracts in the state in 2025 on the argument that they are swaps under federal law. Separately, the CFTC submitted proposals on the definition of swaps and on gaming products to the White House.

The Sixth Circuit Ruling

According to a regulatory roundup from iGaming Business, the Sixth Circuit reversed a lower court decision and ruled for Tennessee. Kalshi had begun offering event contracts to Tennessee residents in 2025, arguing that they qualified as swaps regulated by the federal Commodity Futures Trading Commission, and therefore were not subject to state gambling laws.

The central legal question is preemption: whether federal commodities law overrides state authority over gambling. States argue that sports event contracts are functionally sports wagers, which they regulate and tax. Prediction market operators argue that the contracts trade on a federally regulated exchange. A win for Tennessee at the appellate level strengthens the states' position, although other courts have considered similar questions and the issue could ultimately reach the Supreme Court.

Why a circuit-level ruling matters

Appeals court decisions set binding precedent within their circuit and carry persuasive weight elsewhere. When courts reach different conclusions, higher courts often step in to resolve the conflict. Observers should watch for further appeals, other circuits' decisions and any request for Supreme Court review.

The CFTC's Two Proposals

The CFTC has submitted two proposed rules to the White House, which is part of the regulatory review process before publication.

1. A broader definition of "swap"

The first proposal (RIN 3038-AF82) seeks to broaden the definition of swap to include event contracts that depend on the occurrence of an event associated with a financial, economic or commercial consequence. The wording matters, because the definition determines which contracts fall under CFTC jurisdiction and which may be treated as gambling.

2. A gaming products exclusion

The second proposal would prohibit designated contract markets from listing online gaming products such as blackjack and craps. This is notable because it draws a line between event-based contracts and casino-style games, a distinction casino operators have urged regulators to establish.

Industry Opposition and Business Stakes

At the Global Gaming Expo in Las Vegas, the American Gaming Association and the Indian Gaming Association united in opposition to prediction markets. The AGA estimates that states have lost over $1 billion in tax revenue due to the growth of prediction markets, especially in California and Texas.

The financial stakes are large on the other side too. Kalshi has reportedly sought $1 billion in new funding at a valuation of roughly $40 billion, more than double its previous valuation. That reflects investor confidence that event contracts will remain a significant market. Traditional operators such as DraftKings and FanDuel have also moved into the space, as discussed in our coverage of the sports betting guide and operator strategies.

Federal vs. State Authority: The Core Dispute

The disagreement echoes earlier battles in gambling law. Before the Supreme Court struck down the federal sports betting ban in 2018, sports wagering was largely confined to Nevada. Since then, states have built licensing and tax systems around sportsbooks, collecting revenue and funding consumer protections. Prediction markets challenge that framework by arguing that the federal Commodity Exchange Act controls. States respond that allowing event contracts on games undermines their licensing and tax systems. Courts must decide which view prevails, and the outcome will influence how every operator designs its products.

For tribes, the stakes include exclusivity rights that are written into gaming compacts, which is why tribal organizations have joined the opposition.

What This Means for Bettors

For consumers, the regulatory fight is not just academic. Legal status affects where you can use a product, what protections you have and how winnings are taxed. A state-licensed sportsbook offers dispute resolution through a state regulator and mandatory responsible gambling tools. Prediction markets operate under a different framework, and the legal protections may differ.

• Check your state's rules. Availability and legality can change quickly.
• Understand the product. Event contracts trade at prices that reflect probabilities, and fees apply.
• Compare protections. Look at what recourse you have if something goes wrong.
• Stay informed. Court decisions can alter access.

If you prefer the traditional route, see our overview of US sports betting and our reviews of leading sportsbooks.

What to Watch Next

Key developments to track include whether the CFTC publishes its proposals for public comment, whether Kalshi seeks further review of the Sixth Circuit ruling, how other federal circuits rule on similar disputes and whether Congress acts. Legislative proposals have also been introduced to restrict sports-event contracts from bypassing state gambling laws.

For readers who want regular updates, follow the latest articles on DeucesCracked, where we track regulatory news across poker, sports betting and casino.

Frequently Asked Questions

What did the Sixth Circuit decide?

It ruled in favor of Tennessee and reversed a lower court decision in a dispute involving Kalshi's event contracts.

What is the CFTC proposing?

The CFTC sent two proposals to the White House: one to broaden the definition of swap to include certain event contracts, and one to prohibit designated contract markets from listing online gaming products like blackjack and craps.

Are prediction markets legal everywhere?

Not clearly. Their legal status is contested in the courts and varies by state. Check your local rules before using one.

How much tax revenue have states lost, according to the AGA?

The AGA estimates the figure at over $1 billion, a number reported at the industry's Global Gaming Expo. It is an industry estimate and not an official government figure.

Conclusion: A Decisive Moment for Event Contracts

The Sixth Circuit's decision and the CFTC proposals show that the legal framework for prediction markets is still being written. Follow DeucesCracked for ongoing coverage, and learn more about DeucesCracked and our editorial approach. Please gamble responsibly; help is available at 1-800-GAMBLER.