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A federal court ruling in Ohio adds another chapter to the legal dispute over sports prediction markets in the United States. U.S. District Chief Judge Sarah D. Morrison denied a request from prediction market operator Kalshi that sought to block enforcement action from the Ohio Casino Control Commission. Decision keeps a cease and desist order active while the case continues through the courts.
Good to Know
Conflict began last March when the Ohio Casino Control Commission (OCCC) issued a cease and desist order. Regulators told Kalshi to stop “offering, participating in offering, or facilitating those who offer sports event contracts.” Officials expected a legal challenge because Kalshi had responded to similar actions in other states with lawsuits.
Kalshi filed a lawsuit in October asking a federal court for a preliminary injunction. That request aimed to pause enforcement of the Ohio order while the legal case moved forward. Judge Morrison rejected the request on Monday, allowing the Ohio regulator to enforce the order under state sports betting laws. Whether enforcement happens immediately remains uncertain since Kalshi has already announced plans to appeal.
Debate centers on whether sports event contracts qualify as federally regulated financial derivatives. Prediction markets operate under oversight from the U.S. Commodity Futures Trading Commission (CFTC), which regulates futures and swaps exchanges. Some operators argue sports outcomes fit within the definition of a swap and therefore fall under federal regulation rather than state gambling law.
Judge Morrison disagreed and cited the Absurdity Doctrine associated with former Supreme Court Justice Antonin Scalia. Doctrine states that courts should avoid interpretations of law that produce unreasonable outcomes. She wrote:
“Courts should not construe a statute to produce an absurd result that [the court is] confident Congress did not intend.”
Judge Morrison also explained how swaps usually function in financial markets, saying:
“These goals are better achieved when a ‘swap’ is understood as a transaction involving financial instruments and measures that traditionally and directly affect 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,” Judge Morrison wrote.
“This conclusion is further supported by the Court’s obligation to avoid absurdity. Ohio argues that absurd results would flow from defining a ‘swap’ to include a sports-event contract. The Court agrees.”
Kalshi said it will challenge the ruling. A spokesperson stated: “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,” according to NBC News.
Appeal will go to the U.S. Court of Appeals. Several related disputes between state regulators and prediction market operators already exist, raising the possibility that the issue could eventually reach the U.S. Supreme Court.