A federal judge in Ohio has handed prediction market operator Kalshi a significant legal defeat, ruling that the platform must comply with state gambling regulations despite its claims of federal oversight.

U.S. District Judge Sarah D. Morrison denied Kalshi’s request for a preliminary injunction against Ohio regulators, firmly rejecting the New York-based company’s argument that its sports-event contracts qualify as federally regulated financial instruments under the Commodity Exchange Act.

“History reveals no evidence that Congress intended to preempt state sports gambling laws,” Morrison wrote in her opinion, striking at the heart of Kalshi’s legal strategy.

The Swaps Argument Falls Flat

Kalshi had sought to position its sports prediction contracts as “swaps”, a category of derivatives traditionally regulated by the CFTC rather than state gambling authorities. The platform allows users to trade on outcomes across sports, politics, and global events, treating these wagers as financial market positions.

Judge Morrison wasn’t having it. In a particularly pointed passage, she noted that traditional swaps relate to factors directly influencing commodity prices. “Currency exchange rates, the weather, and energy costs all do that; the number of points scored in the Huskies-Bobcats game does not,” she wrote.

The judge went further. She warned that accepting Kalshi’s interpretation would create illogical outcomes. “Ohio argues that absurd results would flow from defining a ‘swap’ to include a sports-event contract,” Morrison stated. “The Court agrees.”

Regulatory Battle Lines

Ohio Attorney General Dave Yost celebrated the ruling as a win for state regulatory authority. “Kalshi argued the federal Commodity Exchange Act preempts enforcement of Ohio law. Nope,” Yost wrote on social media. “These ‘prediction markets’ have exploded and look an awful lot like gambling.”

Kalshi indicated it would appeal, noting that the Ohio decision conflicts with a recent federal court ruling in Tennessee that sided with the platform. “We respectfully disagree with the Court’s decision, which splits from a decision from a federal court in Tennessee just a few weeks ago, and will promptly seek an appeal,” a company spokesperson said.

The case shows the growing tension between state gambling regulators and federal commodities authorities over jurisdiction of prediction markets. CFTC Chair Michael Selig has defended these platforms, arguing they “provide useful functions for society by allowing everyday Americans to hedge commercial risks, like increases in temperature and energy price spikes.”

A Patchwork of Rulings

Courts across the country have delivered inconsistent verdicts in similar disputes. Federal judges in Tennessee and New Jersey have ruled in Kalshi’s favour. Courts in Massachusetts and Nevada have backed state regulators. This judicial split practically guarantees the matter will require higher court resolution.

The regulatory landscape for sports gambling itself remains fragmented. Whilst 39 states and the District of Columbia now permit sports wagering in some form, with digital betting available in 32 jurisdictions, the Supreme Court’s 2018 decision ending Nevada’s monopoly left substantial questions about how newer market formats would be classified.

For Kalshi and competitors like Polymarket, the Ohio ruling represents more than a single state setback. It threatens their core business model premise: that prediction markets operate in a fundamentally different regulatory space than traditional gambling. As this litigation moves through the appeals process, the distinction between financial instruments and wagers may prove increasingly difficult to sustain.