A federal judge in Ohio has rejected Kalshi’s bid for a preliminary injunction against state gambling regulators, mandating the company to adhere to Ohio’s gambling laws.

U.S. District Judge Sarah D. Morrison stated that the Commodity Exchange Act does not supersede Ohio’s sports betting regulations, dismissing Kalshi’s claim that its contracts are to be regarded as federally regulated financial instruments.

“There is no historical evidence indicating that Congress aimed to override state sports betting laws,” Morrison noted in her ruling.

Kalshi, headquartered in New York, provides a platform where users can trade on various outcomes from sports, politics, to global events. The company contended that its sports contracts should be classified as “swaps,” akin to derivatives traded in financial markets.

Morrison disagreed, emphasizing that swaps are generally associated with elements influencing commodity prices directly.

“Currency exchange rates, weather, and energy costs fit this criterion; however, the score of a game between the Huskies and Bobcats does not,” she wrote.

The judge further explained that defining sports contracts as swaps would lead to unreasonable outcomes.

“The Court has a duty to prevent absurdity,” Morrison stated, expressing agreement with Ohio’s argument that such classifications would yield nonsensical results.

Ohio Attorney General Dave Yost lauded the ruling, asserting that Kalshi’s offerings closely resemble gambling activities.

“Kalshi posited that the federal Commodity Exchange Act nullifies Ohio law. Not true,” Yost declared on social media. “These ‘prediction markets’ have surged and resemble gambling quite closely. A major win for Ohio!”

A representative for Kalshi indicated the company intends to appeal the decision. “We respectfully contest the Court’s ruling, which contrasts with a recent decision from a federal court in Tennessee, and we will seek an appeal promptly,” the spokesperson remarked.

This case is part of an ongoing conflict between state regulators and federal authorities regarding the governance of prediction markets. Other platforms like Polymarket argue that their contracts fall under the jurisdiction of the Commodity Futures Trading Commission (CFTC).

CFTC Chair Michael Selig has advocated for prediction markets, highlighting their societal benefits.

“They serve crucial functions in the economy by enabling regular Americans to manage commercial risks, such as temperature fluctuations and energy price increases,” Selig explained. “They also act as a necessary counterbalance to media narratives and information sources.”