As the current SEC chairman's title has not yet faded from the market's memory, Gary Gensler has already submitted his name to the records of the U.S. Court of Appeals for the Sixth Circuit as an "amicus curiae". The issue at hand is whether Kalshi's sports prediction contracts should be considered financial derivatives regulated by the federal CFTC or gambling products governed by state gambling laws. In his opinion, Gensler sided with Ohio: federal law does not grant the CFTC regulatory authority over sports-related prediction markets, and platforms cannot bypass state gambling regulations under the federal derivatives framework. Also on the same side are several gambling industry organizations and tribal stakeholders who submitted supportive briefs, directly pointing out that such products are eroding the traditional gambling tax bases and licensing revenues of state governments and tribes. For Kalshi, this is not just a lawsuit with Ohio; rather, it is a game to define the life and death boundaries of the entire prediction market sector under the Sixth Circuit: if the court finds that state law takes precedence, future sports prediction contracts will have to face gambling licenses, local taxes, and enforcement risks on a state-by-state basis, and the product forms and implementation scope of Kalshi and all similar platforms will be confined to a narrower compliance corridor by this ruling.
From Federal Regulator to State Ally
In the jurisdictional dispute between Ohio and Kalshi, standing on the side of the state is Gary Gensler, a former federal regulator who previously led both the CFTC and SEC. In the past, he was seen as a representative of the "federal long arm" due to his strong regulatory stance on crypto assets, but now he has submitted an amicus brief to the Sixth Circuit Court of Appeals, claiming that federal law does not grant the CFTC the authority to regulate sports-related prediction markets. Reports from CoinDesk indicate that he explicitly emphasizes in his brief that prediction markets should not supersede state gambling regulations, effectively endorsing the state’s enforcement space and completing a formal reversal from being a symbol of federal regulation to an ally of state authority.
However, this “defection” does not indicate a sudden change in his regulatory philosophy; rather, it resembles the application of a consistent conservative approach to a new battleground. Gensler repeatedly emphasizes in his brief that one should not evade state gambling regulation by packaging the contracts as financial derivatives, which aligns with his stance of "substance over form" in the realms of crypto and derivatives: as long as the outcomes of transactions are closely tied to sports events, they should not automatically fall under the umbrella of federal commodity regulation just because they are labeled as "commodity contracts" or "event contracts," thus sidestepping local gambling licensing and tax systems. In this sense, Gensler's “alignment with state authority” is more about tightening the federal exemption criteria with a familiar conservative regulatory framework, rather than releasing greater autonomy to the market.
Gensler Aligns with State Authority
In the brief submitted to the Sixth Circuit Court of Appeals, Gensler made his position very clear: federal commodity and derivatives laws do not "specifically" grant the CFTC the authority to regulate sports-related prediction markets. If these contracts are centered on the results of sports events, they should first comply with the constraints of state gambling laws, rather than being automatically included under federal regulatory protection by being packaged as financial derivatives. His logical structure is to first narrow the applicability of federal law—sports predictions are not the type of market that Congress intended to assign to the CFTC—and then emphasize that as long as federal legislation does not explicitly strip states of their traditional jurisdiction in gambling, the court should not "reverse engineer" state gambling licenses, tax, and enforcement systems by expanding CFTC authority.
Within this framework, if the court adopts Gensler's argument, the direct consequence is that it will be harder for sports prediction markets to claim exclusive regulation by the CFTC under the banner of "federal financial contracts." The CFTC's actual jurisdiction over such products would be significantly compressed, and state gambling regulatory authorities would gain more legitimacy to exercise enforcement authority over sports contracts similar to Kalshi. Alongside Gensler's stance, several gambling industry organizations and tribal stakeholders also voiced support in their amicus briefs, stressing that the sports prediction market is encroaching on the gambling revenues of state governments and tribes, adding a layer of fiscal justification to the narrative of "state authority first." For other state attorneys general and gambling regulatory bodies, this public alignment of a former federal regulator with the state is itself a signal: in the absence of clear federal legislation, continuing to initiate actions against sports prediction platforms under state gambling laws is not only politically defensible but also has legal precedents to draw from.
Who Collects Taxes and Issues Licenses
From the state government's perspective, once platforms like Kalshi are classified under gambling logic, the question is no longer just "allowed or not," but rather "who decides the taxes and licenses." Ohio plans to enforce state gambling laws against Kalshi's sports event contracts, which implicitly means: these products should be incorporated into the state licensing system, pay local taxes and licensing fees, and comply with a range of operational restrictions such as betting limits, hours of operation, and geographic access. Conversely, if the platform insists on only adhering to the federal CFTC system and not obtaining state licenses, this would equate to attracting bets equivalent to sports gambling locally while circumventing state taxes and regulations, which is why many courts in the U.S. are including "tax allocation" and "license issuance rights" as points in disputes regarding "who regulates sports prediction markets."
The push for state firm stance is not just about abstract "regulatory authority," but also about tangible financial implications. The Indiana Gaming Association and others have explicitly stated in their amicus briefs that the sports prediction market is siphoning funds away from tribal and state gambling revenues, which makes tribal casinos and state finances view Kalshi-type products as "untaxed competitors." Once the court confirms that state gambling regulation takes precedence, Kalshi and similar platforms will have to face separate tax rates, licensing fees, and local compliance rules in each state they enter; if any platform attempts to persist solely through the CFTC federal route, it will inevitably face more tug-of-war over taxes and licenses with additional states. A series of ongoing cases, including the Sixth Circuit proceedings, are essentially answering the same question: who controls the taxes and licenses for the sports prediction market, which will determine the boundaries of the platform's business model and whether states can continue to perceive them as new sources of revenue.
How the Kalshi Case Redraws the Prediction Market Red Line
Procedurally, Kalshi chose to take preemptive action before the state made its move. Faced with Ohio's intention to enforce its gambling laws against its sports event contracts, Kalshi filed a preemptive lawsuit in federal district court, seeking court confirmation that these contracts are governed by CFTC federal derivatives rules, thereby excluding the applicability of state gambling regulations. However, a federal judge rejected this request in March 2026 (according to CoinDesk), effectively refusing to grant Kalshi a "seal of protection" before any actual state enforcement commenced. Kalshi then appealed to the U.S. Sixth Circuit Court of Appeals, with Ohio as one of the respondents. The case, during the appeal process, received amicus briefs from Gensler and several gambling industry organizations and tribal stakeholders, all pointing to the same red line: the sports prediction market should be viewed as "gambling" at the state level, not as "financial contracts" at the federal level.
If the Sixth Circuit ultimately adopts Gensler's stance, it will be tantamount to establishing an order in the ruling: federal law does not grant the CFTC authority over sports prediction markets, and these contracts fall under the jurisdiction of state gambling laws. For Kalshi, sports contracts will be officially classified as "gambling" products, necessitating that they comply with state gambling licenses, tax structures, and regulatory terms fully when operating in the Sixth Circuit jurisdiction, and it can no longer rely solely on the "federal derivatives brand license" as a shield. More critically, this ruling will set a strong precedent that other courts may reference when dealing with similar platform cases; while the brief mentions that platforms like Polymarket are facing enforcement pressures due to sports contracts in multiple states, the source of this information is singular and still needs verification, yet regardless of the details of each case, the Sixth Circuit's decision will be an important reference point when state finance departments, gambling regulators, and the CFTC redefine their power boundaries. As of June 2026, the case has yet to reach a final judgment, and whether other circuit courts will follow the Sixth Circuit's path will directly determine how U.S. prediction market platforms design their product lines and geographic strategies—whether as "financial infrastructure" or as a "gambling industry."
Compliance Gray Areas for Platforms like Polymarket
Beyond the Kalshi case, what is making on-chain practitioners anxious is that decentralized prediction platforms are being "incidentally" pulled into the same regulatory narrative. Briefings have mentioned that Polymarket and other platforms are facing lawsuits and cease-and-desist pressures in multiple states due to sports contracts, but this assertion currently comes from a singular source and still requires further verification. Even without drawing conclusions on specific cases, if the Sixth Circuit confirms that sports predictions are primarily governed by state gambling laws, state regulatory agencies and tax departments will naturally direct their attention towards these on-chain prediction markets that are accessible to global users but have not applied for state licenses.
The licensing attitudes of U.S. states toward online gambling and sports betting are already highly fragmented; some states issue limited licenses, while others explicitly ban it, and on-chain prediction markets typically only implement a simple pop-up or self-reporting of country at the front end, making precise geographic blocking difficult to enforce. Once states generally classify sports prediction contracts as unauthorized gambling operations, platforms like Polymarket will either have to pursue a "state-by-state licensing" heavy asset path or forcibly block relevant contracts from American or even certain state users, or even cut off the sports module at the product level, shifting to contracts that can be more easily interpreted as "information derivatives" to find an acceptable compliance cost boundary amid rising licensing, taxation, and enforcement risks.
The Federal and State Tug-of-War is Far from Over, What Lies Ahead for the Prediction Market
Gensler's alignment with Ohio and his denial of the CFTC's federal authorization over sports prediction markets in his amicus brief have directly brought into the spotlight the previously considered "federal license cover-up" path, effectively escalating the federal-state power struggle. As of June 2026, the case remains under review by the Sixth Circuit Court of Appeals, and numerous gambling industry organizations and tribal stakeholders have also submitted supportive briefs for the state. In the context of similar disputes being heard across multiple courts in the U.S., this coalition significantly increases the probability that the court will adopt the state's position, yet it also leaves a tremendous uncertainty regarding the outcome, including the potential for appeals to higher courts. If the Sixth Circuit ultimately confirms that sports prediction markets primarily fall within the framework of state gambling laws, the boundaries of the CFTC's authority in this specialized area will be passively constricted, tax allocations and licensing rights will be more centralized back into the hands of state governments and tribes, and Kalshi, Polymarket, and other crypto prediction projects designed around sports events will have to accept a recalculation of compliance costs under the dual constraints of "federal rules + state gambling regulations"; conversely, even if a more federally favorable ruling occurs, local regulatory agencies are unlikely to fully withdraw in the short term. The more realistic path is that institutions like Kalshi, which follow the federal route, will continue to refine their connections with the CFTC while preparing state licenses and local tax reporting and filing plans for key states; meanwhile, on-chain projects like Polymarket will need to treat sports contracts as high-sensitivity assets, segmenting user visibility and tradability by state, and isolate risks from unauthorized states as much as possible in the off-chain access layer. Regardless of how the Sixth Circuit ultimately delineates the lines, for all prediction market projects wishing to reach the general population in the U.S., viewing multi-layer regulation as a starting point rather than an exception will be a more realistic strategic choice for quite some time to come.
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