A federal court in Ohio has become the latest court to deny Kalshi a preliminary injunction against state officials.
Kalshi sued Ohio Casino Control Commission (OCCC) Executive Director Matt Schuler and Ohio Attorney General Dave Yost last year. It took the state to court after the OCCC followed up on cease-and-desist letters it sent to Kalshi (as well as other prediction market platforms Robinhood and Crypto.com) by warning the state’s gaming licensees that partnering with such firms risked jeopardizing their licenses.
Kalshi accused the OCCC and the AG of acting unlawfully by threatening to prohibit trading of event contracts, stating its familiar case that the Commodity Exchange Act (CEA) grants the Commodity Futures Trading Commission (CFTC) exclusive authority to oversee event contracts, including those on sports. The company is seeking a preliminary injunction and further action from the court to enjoin the OCCC from enforcing state gaming laws.
U.S. District Court for the Southern District of Ohio Chief Judge Sarah Morrison wrote on Monday that “Kalshi fails to make a clear showing that it is entitled to the extraordinary preliminary injunctive relief it seeks.” The case will continue, and Kalshi can appeal the decision to halt the injunction and stay online for the time being in Ohio.
Sports aren’t swaps, opines judge
In her reasoning for rejecting Kalshi’s request, Morrison explained that she determined that the CEA does not extend to governing sports contracts, despite Kalshi’s argument. One of the issues at hand is the definition of a “swap” under the CEA. Morrison sided with Ohio’s narrower interpretation than with Kalshi’s.
“Under Kalshi’s construction, a sports-event contract is a swap because it is a contract for payment based on the outcome of a sporting event,” wrote Morrison. “But if that is true, then all contracts for payment based on the outcome of a sporting event — all sports bets — would be forced onto DCMs [Designated Contract Markets] like Kalshi and every sportsbook in the country would be put out of business. In the absence of congressional intent to effect such a sea change, that result is absurd.”
Morrison also opined that if sports event contracts were deemed to be swaps, it would have “a seismic impact” on Indian tribes’ authority to regulate gaming on tribal land under the Indian Gaming Regulatory Act (IGRA). Several tribal organizations filed an amicus brief weighing in on the Ohio case, as they have done in Nevada and Maryland.
‘No evidence’ that Congress preempt gambling laws
The judge wrote that since Kalshi failed to clearly show that its sports contracts are subject to the CFTC’s exclusive jurisdiction, it also failed to establish a likelihood of success on the merits. She added that even if she had found that Kalshi’s sports markets were swaps, the firm has not shown that Congress intended the CEA to preempt state laws on sports gambling.
“History reveals no evidence that Congress intended to preempt state sports gambling laws,” reads another line from Morrison’s ruling. “There is no evidence that Congress intended the CEA to preempt sports gambling laws in those few states where it was allowed under PASPA. In fact, all available evidence points to the contrary.”
Because the court found that Kalshi has not proven its burden to establish that the circumstances demand such extraordinary relief as a preliminary injunction, Morrison denied the request.
Mixed court opinions continue
Morrison noted that the question of whether states should be allowed to take enforcement action against Kalshi over sports contracts has been considered by at least four other federal district courts and is pending before at least three courts of appeals as of the time of her decision.
In Tennessee, which is also part of the Court of Appeals for the Sixth Circuit like Ohio, Judge Aleta Trauger granted Kalshi a preliminary injunction in late February, agreeing with Kalshi’s interpretation that sports event contracts fall under the CEA definition of “swaps”. Trauter also opined that Kalshi was likely to succeed based on the merits of the case, in part because “conflict preemption applies.”
Trauter’s decision conflicts directly with Morrison’s stance. But, in Nevada and Maryland, decisions have gone the way of the states.
In Maryland, a federal judge concluded last summer that Kalshi did not stand a strong chance of success in its pre-emption argument, a ruling Kalshi appealed in the Fourth Circuit. In Nevada, Judge Andrew Gordon dissolved the preliminary injunction he previously granted to Kalshi, citing new law from other evolving cases.
As well as Ohio, Tennessee, Nevada and Maryland, Kalshi is also involved in active court cases in Connecticut, Massachusetts, Michigan, New Jersey, New York and Utah. While Kalshi is the plaintiff in this Ohio federal court case, Michigan last week became the latest state to sue the company in state court.
