CFTC Moves To Classify Sports Event Contracts As Swaps, Kalshi Cites Rule In Appeal

The CFTC took two separate actions on October 9, both effective or proposed the same day:

• An interim final rule (IFR) that codifies the CFTC’s position that state- or tribally licensed casino-style gambling products, including sportsbook wagers and casino games, are excluded from the swap definition. It took effect immediately on publication in the Federal Register.
• A notice of proposed rulemaking (NPRM) that would add event contracts “based on sports-, politics-, cultural-, and weather-related events” to the swap definition. This one needs a final rule, and public comment is open for 30 days from Federal Register publication, before it can take effect.

“Casino-style gambling products are not derivatives,” CFTC Chairman Michael Selig (pictured) said of the interim rule. 

Of the proposal to bring event contracts in, he said they “are commodity derivatives squarely within the CFTC’s regulatory remit under the Commodity Exchange Act and are within the agency’s exclusive jurisdiction.”

Kalshi filed its petition for rehearing and rehearing en banc on October 9, the last day of the 14-day window to challenge the Sixth Circuit’s September 25 ruling in KalshiEX LLC v. Schuler and KalshiEX LLC v. Orgel. 

That ruling, from a panel of Judges Julia Smith Gibbons, Eric Clay, and Rachel Bloomekatz, held that Kalshi had not shown that its sports-event contracts are swaps, and that even if they were, the CEA does not preempt Ohio’s or Tennessee’s gambling laws. It affirmed Ohio’s denial of a preliminary injunction and vacated the injunction Kalshi had won in Tennessee.

Kalshi’s petition, signed by Milbank’s Neal Katyal, argues the panel’s decision conflicts with the Third and Ninth Circuits and with Sixth Circuit precedent. It also argues the CFTC’s same-day rules “substantially undermine the panel’s holding concerning the meaning of ‘swap.’” 

According to Kalshi’s filing, the interim rule itself states that the CFTC acted partly because the Sixth Circuit panel worked from “the erroneous premise that if event contracts are swaps, then casino-style gambling products must also be swaps,” which led it to deviate from the statute’s plain text.

The Sixth Circuit's ruling already deepened a circuit split: the Ninth Circuit ruled against Kalshi in August, while the Third Circuit previously sided with the company. That split is now the subject of a separate Supreme Court petition from New Jersey, with Kalshi’s response due November 9. 

An Arizona has separately asked the Ninth Circuit to revisit its own injunction on the strength of the Sixth Circuit's reasoning, so a rehearing grant (or denial) in Ohio and Tennessee could ripple into that fight too.

If the Sixth Circuit declines to rehear the case, its mandate is expected to issue around October 16, making the vacatur of Kalshi’s Tennessee injunction formally effective and returning both cases to the district courts. The ruling also binds federal courts in Michigan and Kentucky, where Kalshi faces separate state actions.