Kalshiex LLC v. Schuler et al

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
KALSHIEX, LLC,
Plaintiff,
v.
MATTHEW T. SCHULER, et al.,
Defendants.
:
:
Case No. 2:25-cv-1165
Chief Judge Sarah D. Morrison
Magistrate Judge Chelsey M.
Vascura
OPINION AND ORDER
KalshiEX, LLC operates a futures exchange specializing in event contracts.
An event contract is a “form of derivatives contract” that allows “users” across the
nation to “trade on the outcome of real-world events.” (Compl., ECF No. 1, ¶¶ 29,
46.) In January 2025, Kalshi listed its first contract allowing traders to take
positions on the outcome of a sporting event. Given the sports-event contracts’
resemblance to sports betting, state gaming regulators began knocking on Kalshi’s
door; Ohio’s Casino Control Commission was among them. After months of
correspondence, the Commission concluded that Kalshi’s provision of sports-event
contracts to Ohio consumers violated state law; it threatened to initiate civil and
criminal enforcement actions if Kalshi continued.
Kalshi initiated this suit to enjoin the Commission and the Ohio Attorney
General from regulating contracts traded on Kalshi’s exchange. (Compl.) The
matter is before the Court on Kalshi’s Motion for Preliminary Injunction. (Mot.,
ECF No. 11.) Ohio responded (Resp., ECF No. 31-5) and Kalshi replied (Reply, ECF
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No. 49). The Indian Gaming Association, National Congress of American Indians,
Washington Indian Gaming Association, Arizona Indian Gaming Association,
California Nations Indian Gaming Association, Oklahoma Indian Gaming
Association, Minnesota Indian Gaming Association, United South and Eastern
Tribes Sovereignty Protection Fund, San Manuel Gaming and Hospitality
Authority, and twenty-two federally recognized Indian Tribes filed an Amicus Brief
in support of Ohio’s response to the Motion. (Amicus Br., ECF No. 55.) The parties
have also made the Court aware of relevant authority issued since the Motion was
filed. (ECF Nos. 57, 61, 64, 66, 68.)
For the reasons below, Kalshi’s Motion for Preliminary Injunction is
DENIED.
I. BACKGROUND
There is no dispute about the facts giving rise to this case. The Commodity
Exchange Act (“CEA”), 7 U.S.C. § 1 et seq., is “a comprehensive regulatory structure
to oversee the volatile and esoteric futures trading complex.” Merrill Lynch, Pierce,
Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 356 (1982) (quotation omitted).
Subject to limited exceptions, the CEA gives the Commodity Futures Trading
Commission (“CFTC”) “exclusive jurisdiction” over “accounts, agreements . . . , and
transactions involving swaps or contracts of sale of a commodity for future
delivery . . . , traded or executed on” boards of trade or designated contract markets.
7 U.S.C. § 2(a)(1)(A). “Swaps” were only added to the CFTC’s portfolio in 2010, by
way of the Dodd-Frank Wall Street Reform and Consumer Protection Act developed
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in the aftermath of the 2008 financial crisis. DTCC Data Repository (U.S.) LLC v.
U.S. Commodity Futures Trading Comm’n, 25 F. Supp. 3d 9, 11 (D.D.C. 2014).
Kalshi was first approved as a designated contract market (“DCM”) in 2020.
The company “specializes in event contracts,” which are instruments that provide
for payment based on the occurrence of an event or contingency. (Compl., ¶ 47.) See
also 7 U.S.C. §§ 1a(47), 7a-2(c)(5)(C). As Kalshi describes it, an event contract
identifies a future event with several possible outcomes, a payment
schedule for the outcomes, and an expiration date. Most commonly,
event contracts involve a binary question: Every “yes” position has an
equal and opposite “no” position. For example, a . . . contract might
center around whether an earthquake will take place in Los Angeles
County before December 31, 2025. A purchaser may trade on either the
“yes” or the “no” position on the contract. If an earthquake does take
place in Los Angeles County before the end of the calendar year, then
the “yes” positions would be paid out.
(Compl., ¶ 29.)
A DCM must conduct its business in accordance with certain “core
principles,” including that the DCM comply with the CEA and any CFTC rules and
regulations. 7 U.S.C. § 7(d)(1)(A). A DCM can list new contracts for trading on its
exchange in two ways: it can either request approval from the CFTC, 7 U.S.C. § 7a-
2(c)(4), or it can “self-certify” that the contract complies with all applicable law and
list the contract subject to an opportunity for CFTC review, 7 U.S.C. § 7a-2(c)(1).
Event contracts are subject to an additional “Special Rule” for review and approval.
7 U.S.C. §§ 7a-2(c)(5)(C)(i), (ii). Under the Special Rule, the CFTC has explicit
authority to conduct a public-interest review of newly listed event contracts that
“involve” unlawful activity, terrorism, assassination, war, gaming, or other similar
activity. Id. The CFTC has further authority to prohibit a DCM from listing an
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event contract that has been determined to be against the public interest. Id. The
CFTC has, by rulemaking, concluded that event contracts involving the enumerated
activities are contrary to the public interest and DCMs are thus prohibited from
listing them. 17 C.F.R. § 40.11.
For five years, Kalshi offered a platform for trading event contracts on “an
array of substantive areas” while complying with the CFTC’s “extensive” regulatory
framework. (Id., ¶¶ 40, 48.) Then, on January 22, 2025, Kalshi self-certified “the
first of a number of sports contracts that are now available on its exchange.” (Id.,
¶ 49.) These contracts (which the Court will refer to as “sports-event contracts”)
“allow users to place positions on, for example, which teams will advance in certain
rounds of the NCAA College Basketball Championship or who will win the U.S.
Open Golf Championship.” (Id.)
Two months later, the Ohio Casino Control Commission sent Kalshi a letter
(i) warning the company that it appeared to be operating an “unlicensed sportsbook”
and “facilitating bookmaking” in violation of Ohio civil and criminal law, and
(ii) demanding that Kalshi cease offering sports-event contracts in Ohio without
complying with Ohio’s sports gambling laws. (ECF No. 1-1 (citing Ohio Rev. Code
§§ 2915.02, 3775.02, 3775.99).)
Like many other states, Ohio legalized sports gambling after the Supreme
Court struck down the federal prohibition on state-approved sports betting. See,
e.g., Commonwealth of Mass. v. KalshiEX, LLC, No. 2584CV02525, 2026 WL
188019, at *3 (Mass. Super. Jan. 20, 2026) (noting that Massachusetts legalized
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sports betting in 2022) (citing Murphy v. Nat’l Collegiate Athletic Ass’n, 584 U.S.
453 (2018)). Even still, sports gambling “cannot be offered in Ohio without a license
issued by the Commission.” (ECF No. 1-1 (citing Ohio Rev. Code § 3775.03(A).)
Licensees must then comply with Ohio Revised Code Chapter 3775. Among other
things, Chapter 3775 prohibits sports gambling for people under age 21 and for
identified problem gamblers. Ohio Rev. Code §§ 3775.13, 3775.99(A)(2). As the
Commission pointed out in its letter, Kalshi does not have a sports gambling license
and only age-gates its platform for those under 18. (ECF No. 1-1.) The Commission
also sent a letter to sports gambling licensees advising that companies that offer
sports-event contracts “are operating online sports gaming”; the Commission
warned that a licensee’s decision to affiliate with an unlicensed sports gaming
operator may form the basis of Commission action against the licensee. (ECF No.
31-1, PAGEID # 428–29.)
The parties engaged in fact-finding and dialog for more than six months
before the State demanded Kalshi comply with Ohio’s sports gambling laws. (ECF
Nos. 1-2, 1-3, and 1-4.) This suit followed.
II. LEGAL STANDARD
Federal Rule of Civil Procedure 65 governs the issuance of a preliminary
injunction. “A preliminary injunction is an extraordinary remedy which should be
granted only if the movant carries his or her burden of proving that the
circumstances clearly demand it.” Overstreet v. Lexington-Fayette Urb. Cnty. Gov’t,
305 F.3d 566, 573 (6th Cir. 2002); see also EOG Res., Inc. v. Lucky Land Mgmt.,
LLC, 134 F.4th 868, 874 (6th Cir. 2025) (quoting Starbucks Corp. v. McKinney, 602
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U.S. 339, 345–46 (2024)). “The purpose of a preliminary injunction, unlike a
permanent one, is to prevent any violation of the plaintiff’s rights before the district
court enters a final judgment.” Resurrection Sch. v. Hertel, 35 F.4th 524, 528 (6th
Cir. 2022), cert. denied, 143 S. Ct. 372 (2022) (further quotation omitted).
Courts examine four factors when deciding whether to issue a preliminary
injunction: (1) whether the plaintiff has established a strong likelihood of success on
the merits; (2) whether the plaintiff would suffer irreparable injury without a
preliminary injunction; (3) whether the injunction would cause substantial harm to
others; and (4) whether the public interest would be served by the requested
injunction. EOG Res., 134 F.4th at 874 (citing Winter v. Nat. Res. Def. Council, Inc.,
555 U.S. 7, 20 (2008)). While courts generally “balance” these four factors, a plaintiff
must prove all four to prevail. Id. at 885 (citing Winter, 555 U.S. at 20).
III. ANALYSIS
This Court is not the first to hear a request from Kalshi to enjoin a state from
applying its gaming regulations to sports-event contracts listed on Kalshi’s
exchange. The question has been considered by at least four other federal district
courts and is pending before at least three courts of appeals. See KalshiEX LLC v.
Martin, 793 F. Supp. 3d 667 (D. Md. 2025) (denying Kalshi’s motion for preliminary
injunction), appeal docketed, No. 25-1892 (4th Cir. Aug. 6, 2025); KalshiEX LLC v.
Flaherty, No. 25-cv-02152-ESK-MJS, 2025 WL 1218313 (D.N.J. Apr. 28, 2025)
(granting Kalshi’s motion for preliminary injunction), appeal docketed, No. 25-1922
(3d Cir. May 15, 2025); KalshiEX, LLC v. Hendrick, No. 2:25-cv-00575-APG-BNW,
2025 WL 1073495 (D. Nev. Apr. 9, 2025) (granting Kalshi’s motion for preliminary
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injunction) (Hendrick I), order dissolved, 2025 WL 3286282, --- F. Supp. 3d --- (D.
Nev. 2025) (dissolving the earlier order granting Kalshi’s motion for preliminary
injunction) (Hendrick II), stay denied, No. 25-7516 (9th Cir. Feb. 17, 2026);
KalshiEX LLC v. Orgel, No. 3:25-cv-00034, 2026 WL 474869 (M.D. Tenn. Feb. 19,
2026) (granting Kalshi’s motion for preliminary injunction). Having studied the
parties’ filings and the growing body of relevant case law, the Court concludes that
the instant motion presents questions of law, not fact.1 As such, no hearing is
necessary to issue a ruling. See Certified Restoration Dry Cleaning Network, L.L.C.
v. Tenke Corp., 511 F.3d 535, 552–53 (6th Cir. 2007). For the reasons below, Kalshi
fails to make a clear showing that it is entitled to the extraordinary preliminary
injunctive relief it seeks.
A. Likelihood of Success on the Merits
The merits of this case center on the Constitution’s Supremacy Clause. U.S.
CONST. art. VI, cl. 2. The Supremacy Clause “specifies that federal law is supreme
in case of a conflict with state law.” Murphy, 584 U.S. at 477. Said another way,
when state and federal laws are “in conflict or at cross-purposes,” “federal law wins
out.” Churchill Downs Tech. Initiatives Co. v. Michigan Gaming Control Bd., 162
F.4th 631, 637 (6th Cir. 2025) (quoting Arizona v. United States, 567 U.S. 387, 399
(2012)).
1 The parties represented to the Court at the Rule 65.1 Informal Conference
that neither “discovery” nor “fact-finding” was necessary on the preliminary
injunction. (ECF No. 30, PAGEID # 354–55.) They later declined the Court’s
invitation to convert the motion for preliminary injunction to a motion for judgment
on the merits. (See id., PAGEID # 367–68.)
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Kalshi argues that the CEA preempts Ohio’s sports gambling laws and, as a
result, Ohio cannot regulate the sports-event contracts either directly (by requiring
Kalshi to apply for a license) or indirectly (by restricting Kalshi’s ability to do
business with Ohio licensees). In Kalshi’s view, the CEA’s grant of exclusive
jurisdiction over DCMs and the event contracts they list gives the CFTC authority
over the sports-event contracts. Ohio argues in response that sports-event contracts
fall outside the CFTC’s exclusive jurisdiction and that, in any case, Congress did not
intend the CEA to preempt states from exercising their police power to regulate
sports gambling.
1. The CEA does not govern the sports-event contracts.
Before considering whether the CEA preempts Ohio’s sports-gambling laws,
the Court must ask whether the CEA even applies. The CEA grants the CFTC
“exclusive jurisdiction” over “accounts, agreements . . . , and transactions involving
swaps . . . traded or executed on a” DCM. 7 U.S.C. § 2(a)(1)(A). The CEA provides
several definitions of “swap.” See 7 U.S.C. § 1a(47)(A). Kalshi relies on subsection
(ii), which defines a “swap” as a contract “that provides for . . . payment . . . that is
dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an
event or contingency associated with a potential financial, economic, or commercial
consequence[.]” 7 U.S.C. § 1a(47)(A)(ii). The CEA does not define the words
comprising this definition. The parties disagree over whether the sports-event
contracts constitute “swaps.”2
2 Kalshi engages in a painstaking effort to point out differences between
traditional gambling and the sports-event contracts traded on its exchange. (See
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As the Supreme Court has recognized, “a statute’s meaning does not always
turn solely on the broadest imaginable definitions of its component words.
Linguistic and statutory context also matter.” Epic Sys. Corp. v. Lewis, 584 U.S.
497, 523 (2018) (internal quotation marks and citation omitted). Where, as here,
undefined terms lead to a dispute over a statute’s meaning, courts walk the “well-
trod path” of statutory interpretation. United States v. Fitzgerald, 906 F.3d 437, 442
(6th Cir. 2018). On the first pass, those terms are given their “ordinary and natural
meaning.” Id. (quoting United States v. Miller, 734 F.3d 530, 540 (6th Cir. 2013)).
But if “a word in isolation is susceptible of multiple meanings,” courts also consider
the word’s “placement and purpose in the statutory scheme.” Id. (quoting Miller at
540). Finally, “working only within the range of ‘textually permissible meanings,’
[courts] consider which of those interpretations would serve, rather than frustrate,
the statute’s manifest purpose.” Id. at 442–43 (quoting Antonin Scalia & Bryan A.
Garner, Reading Law 57 (2012)). It follows that “courts should not construe a
statute to produce an absurd result that [the court is] confident Congress did not
intend.” Id. at 447.
Kalshi gives the words comprising the “swap” definition broad meaning. It
construes “occurrence of an event” to include the outcome of a sporting contest (Who
will win the NCAA football match-up between Northern Illinois University and Ohio
University?) and happenings within it (Will the total number of points scored in that
Mot., 7, 8; ECF No. 11-2, PAGEID # 248–49, 251; ECF No. 11-3, PAGEID # 260–61,
ECF No. 11-6, PAGEID # 285.) Though tempting to engage with this question, it is
the wrong one. The pertinent question here is not “Are sports-event contracts
gambling?”—it is “Are sports-event contracts swaps?”
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game exceed 41?). (See ECF No. 31-2, PAGEID # 446.) Kalshi also construes
“associated with a potential financial, economic, or commercial consequence” to
encompass all of sports business: ticket sales, hotel rooms, athlete sponsorships,
coaching staff salaries, broadcast rights, licensing and merchandising, and tourism.
(Reply, PAGEID # 639.)
Ohio urges a more limited construction of those words, hemmed in by the
statute’s context. The State looks to subsections (i) and (iii) of the “swap” definition
to identify guideposts for interpreting subsection (ii). In full, subsections (i)–(iii)3
define “swap” to include any agreement, contract, or transaction
(i) that is a put, call, cap, floor, collar, or similar option of any kind
that is for the purchase or sale, or based on the value, of 1 or more
interest or other rates, currencies, commodities, securities,
instruments of indebtedness, indices, quantitative measures, or
other financial or economic interests or property of any kind;
(ii) that provides for any purchase, sale, payment, or delivery (other
than a dividend on an equity security) that is dependent on the
occurrence, nonoccurrence, or the extent of the occurrence of an
event or contingency associated with a potential financial,
economic, or commercial consequence; [or]
(iii) that provides on an executory basis for the exchange, on a fixed
or contingent basis, of 1 or more payments based on the value or
level of 1 or more interest or other rates, currencies, commodities,
securities, instruments of indebtedness, indices, quantitative
measures, or other financial or economic interests or property of
any kind, or any interest therein or based on the value thereof,
and that transfers, as between the parties to the transaction, in
3 “Swap” also includes any agreement, contract, or transaction “that is an
agreement, contract, or transaction that is, or in the future becomes, commonly
known to the trade as a swap;” that is a security-based swap agreement “of which a
material term is based on the price, yield, value, or volatility of any security or any
group or index of securities, or any interest therein;” and “that is any combination
or permutation of, or option on, any agreement, contract, or transaction described in
any of clauses (i) through (v).” 7 U.S.C. §§ 1a(47)(iv)–(vi).
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whole or in part, the financial risk associated with a future
change in any such value or level without also conveying a current
or future direct or indirect ownership interest in an asset
(including any enterprise or investment pool) or liability that
incorporates the financial risk so transferred[.]
7 U.S.C. §§ 1a(47)(A). Subsection (iii) goes on to list specific examples of swaps,
including: an interest rate swap; a foreign exchange swap; an equity index swap; a
debt swap; a credit spread; a weather swap; an energy swap; a metal swap; an
agricultural swap; an emissions swap; and a commodity swap. Canons of statutory
interpretation counsel courts to “avoid ascribing to one word a meaning so broad
that it is inconsistent with its accompanying words[.]” Gustafson v. Alloyd Co., 513
U.S. 561, 575 (1995). Applying this canon to the CEA, Ohio argues that swaps are
limited to “events and contingencies that have a . . . direct and inherent association
with matters of financial, economic, or commercial consequence.” (Resp., 12.)
Both interpretations of the CEA are textually permissible, but Ohio’s better
serves the purpose of the statute. By enacting the CEA, Congress sought to serve
the national public interest of “managing and assuming price risks, discovering
prices, or disseminating pricing information” by establishing a system to deter
market disruptions, ensure financial integrity, avoid systemic risk, protect market
participants from fraud and abuse, and promote responsible innovation. 7 U.S.C.
§ 5. These goals are better achieved when a “swap” is understood as a transaction
involving financial instruments and measures that traditionally and directly affect
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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.4
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. The CEA makes it “unlawful for
any person[5] . . . to enter into a swap” outside of a DCM. 7 U.S.C. § 2. 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. 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 like Kalshi and every sportsbook in the country would
be put out of business.6 In the absence of congressional intent to effect such a sea
4 The Middle District of Tennessee recently issued a decision granting
Kalshi’s motion for preliminary injunction after finding that the sports-event
contracts constitute swaps. Orgel, 2026 WL 474869 at *7. But the court stopped
short of considering whether Kalshi’s or the state’s interpretation of the CEA better
served the statute’s purpose. Instead, the court pointed to United States v. Phillips,
155 F.4th 102 (2d Cir. 2025) to support its conclusion that, under the plain language
of the CEA, Kalshi’s sports-event contracts are swaps. Orgel at *8. But the swap at
issue in Phillips dealt with the exchange rate of the U.S. dollar to the South African
rand—a financial measure that directly affects commodity prices.
5 Eligible contract participants (institutional or other highly sophisticated
investors) are permitted to enter into off-DCM swaps. See 7 U.S.C. § 1a(18)
(defining “eligible contract participant”).
6 Further, as Amici argue (and Kalshi does not dispute), finding that sports-
event contracts are swaps, and thus must be traded on DCMs would have a seismic
impact on Indian tribes’ authority to regulate gaming on tribal land. (Amicus Br.,
generally.) “Congress . . . does not alter the fundamental details of a regulatory
scheme in vague terms or ancillary provisions—it does not, one might say, hide
elephants in mouseholes.” Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 468
(2001).
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change, that result is absurd. Kalshi resists this point, arguing that the CEA leaves
Ohio “free to apply state laws to off-DCM transactions offered by traditional
sportsbooks.” (Reply, 9 (citing 7 U.S.C. § 2(a)(1)(A).) As the Hendrick II court aptly
described it, Kalshi’s argument boils down to this: “if contracts are not traded on an
exchange, then they are not swaps that must be traded on an exchange.” Hendrick
II, 2025 WL 3286282 at *9. Like the District of Nevada, this Court finds Kalshi’s
logic “self-fulfilling, circular, and inconsistent with the statutory text.” Id.
What’s more, the CEA’s legislative history indicates that at least some
members of Congress believed that sports-event contracts would not be considered
swaps. During a July 15, 2010 exchange with Senator Diane Feinstein, Senator
Blanche Lincoln (who, as Chair of the Senate Agricultural Committee, was a
principal contributor to the Dodd-Frank Wall Street Reform and Consumer
Protection Act) acknowledged that “[i]t would be quite easy to construct an ‘event
contract’ around sporting events such as the Super Bowl, the Kentucky Derby, and
Masters Golf Tournament”—but that “[t]hese types of contracts would not serve any
real commercial purpose. Rather, they would be used solely for gambling.” 156
CONG. REC. S5906-07, 2010 WL 2788026 (daily ed. July 15, 2010).
Kalshi fails to clearly show that its sports-event contracts are subject to the
CFTC’s exclusive jurisdiction and thus fails to establish a likelihood of success on
the merits.
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2. Even if the CEA governs, Kalshi fails to establish that
Ohio’s sports gambling laws are preempted.
Even if this Court were to find that sports-event contracts are swaps subject
to the CFTC’s exclusive jurisdiction, Kalshi has not shown that the CEA would
necessarily preempt Ohio’s sports gambling laws.
The Sixth Circuit recently explained the three ways federal law can preempt
state law:
Sometimes, Congress expressly withdraws specified powers from the
states. [Arizona v. United States, 567 U.S. 387, 399 (2012).] Express
preemption provisions indicate Congress’s preemptive intent through
language rather than through a statute’s structure and purpose. Altria
Grp., Inc. v. Good, 555 U.S. 70, 76 (2008).
Preemption can also be implied. There are two kinds of implied
preemption: field and conflict.
Field preemption is the principle that States may not regulate conduct
“in a field that Congress, acting within its proper authority, has
determined must be regulated by its exclusive governance.” Arizona, 567
U.S. at 399. A federally occupied field can cover a narrow subject, so long
as Congress intended to exclusively regulate that field. See Oneok, Inc.
v. Learjet, Inc., 575 U.S. 373, 376, 390 (2015) (Natural Gas Act occupies
the field of “wholesale sales and transportation of natural gas in
interstate commerce,” but preserves state-law antitrust claims based on
gas price manipulation). And, in the context of field preemption, the
Supreme Court has noted “the importance of considering the target at
which the state law aims in determining whether that law is pre-
empted.” Id. at 385.
Under the principle of conflict preemption, federal law preempts state
law if the two “directly conflict.” PLIVA, Inc. v. Mensing, 564 U.S. 604,
617 (2011). That occurs when compliance with both is impossible, or
when . . . state law “stand[s] as an obstacle to the accomplishment” of
Congress’s objectives. Kansas v. Garcia, 589 U.S. 191, 210–11 (2020);
Arizona, 567 U.S. at 399.
Churchill Downs, 162 F.4th at 637–38 (citations simplified).
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Kalshi argues that Ohio’s sports gambling laws are field and conflict
preempted by the CEA when it comes to sports-event contracts traded on its
exchange.7 Congressional intent—as shown in a statute’s language, structure, and
purpose—is “the ultimate touchstone” of any implied preemption inquiry. In re Ford
Motor Co. F-150 & Ranger Truck Fuel Econ. Mktg. & Sales Pracs. Litig., 65 F.4th
851, 860 (6th Cir. 2023) (quoting Cipollone v. Liggett Grp., Inc., 505 U.S. 504, 516
(1992)). Kalshi fails to establish that Congress intended the CEA to preempt state
laws on sports gambling.
a) Field Preemption
To examine the extent of the CEA’s field preemption, the Court must first
define the field in which the CEA has preemptive effect. Kalshi argues that the CEA
preempts “the field of regulating trading on DCMs[.]” (Mot., 11.) Ohio asserts that
framing is overbroad, and urges the Court to focus instead on whether Congress
intended to preempt state laws regulating sports gambling. (Resp., 21.) The
Supreme Court has “emphasize[d] the importance of considering the target at which
[a] state law aims in determining whether that law is pre-empted.” Oneok, Inc. v.
Learjet, Inc., 575 U.S. 373, 385 (2015) (emphasis in original). Kalshi offers no
compelling reason to upset the recognized and “coherent federal policy . . .
7 Kalshi briefly argues in its reply that the CEA expressly preempts the
application of Ohio’s sports gambling laws. (Reply, 10–11.) The argument is made
only in passing and is thus considered waived for purposes of the instant motion. Cf.
McPherson v. Kelsey, 125 F.3d 989, 995–96 (6th Cir. 1997) (“It is not sufficient for a
party to mention a possible argument in the most skeletal way, leaving the court to
put flesh on its bones.”) (quotation and alteration omitted).
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respect[ing] the policy choices of the people of each State on the controversial issue
of gambling.” Murphy, 584 U.S. at 484. Instead, the Court finds several compelling
reasons why the CEA does not disturb Ohio’s sports gambling laws.
As in any implied preemption case, the Court starts with a presumption
against preemption. “Because preemption can trammel upon state sovereignty,
courts apply a ‘strong presumption’ against implied preemption in fields that States
traditionally regulate.” Torres v. Precision Indus., Inc., 995 F.3d 485, 491 (6th Cir.
2021) (quoting Merrick v. Diageo Ams. Supply, Inc., 805 F.3d 685, 694 (6th Cir.
2015)). The “enactment of gambling laws is clearly a proper exercise of the state’s
police power in an effort to promote the public welfare.” United States v.
Washington, 879 F.2d 1400, 1401 (6th Cir. 1989); cf Churchill Downs, 162 F.4th at
635 (noting that states “have traditionally regulated intrastate gambling activity
like wagering on horseracing”). It would thus be “inappropriate” to treat the CEA as
preempting Ohio’s sports gambling laws without first finding that Congress had the
“clear and manifest purpose” to do so. Wellons v. Nw. Airlines, Inc., 165 F.3d 493,
494 (6th Cir. 1999) (quoting New York State Conf. of Blue Cross & Blue Shield
Plans v. Travelers Ins. Co., 514 U.S. 645, 655 (1995)).
History reveals no evidence that Congress intended to preempt state sports
gambling laws. Consider the legal landscape in 2010, when Dodd-Frank amended
the CEA to govern swaps. At the time, the Professional and Amateur Sports
Protection Act (“PASPA”), 28 U.S.C. § 3701, et seq., largely prohibited states from
authorizing sports betting; it allowed only the handful of states that already
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regulated sports gambling to maintain their regimes. 28 U.S.C. §§ 3702, 3704(a). It
was not until eight years after the passage of Dodd-Frank that the Supreme Court
struck down PASPA. Murphy, 584 U.S. at 474. 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.
First, the CEA’s text and structure support the conclusion that Congress did
not intend to preempt state sports gambling laws. It is beyond dispute that the CEA
has, and was intended to have, some preemptive effect. But it is just as clear that
the CEA does not cover the waterfront of DCM-related activity. The language of 7
U.S.C § 2(a)(1)(A) illustrates the point. The statute gives the CFTC “exclusive
jurisdiction” over swaps and futures traded on DCMs. It goes on to say that, outside
of those swaps and futures, “nothing contained in this section shall . . . supersede or
limit the jurisdiction at any time conferred on . . . other regulatory authorities
under the laws of the United States or of any State[.]” Id. This language leaves
ample room for states to legislate and regulate, as Ohio has, on matters tangential
to trading swaps and commodity futures on DCMs.
Further, the CEA expressly preempts state gambling laws in certain limited
circumstances. See 7 U.S.C. § 16(e)(2) (preempting “any State or local law that
prohibits or regulates gaming or the operation of bucket shops” in the case of
electronic trading facilities and agreements excluded or exempted from the CEA
under enumerated provisions). But those circumstances do not cover the sports-
event contracts at issue here. As other courts have recognized, this is ”strong
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evidence” that Congress did not intend the CEA to preempt state sports gambling
laws. Martin, 793 F. Supp. 3d at 681 (citing Cipollone, 505 U.S. at 517).
And finally, the CFTC has itself recognized Congressional intent to “prevent
gambling through the futures markets.” Provisions Common to Registered Entities,
76 Fed. Reg. 44776-01, 44786 (July 27, 2011). Indeed, that was the policy behind the
Special Rule’s public-interest review. See 156 CONG. REC. S5906-07, 2010 WL
2788026 (daily ed. July 15, 2010).
Kalshi thus fails to establish a likelihood of success on its field preemption
theory.
b) Conflict Preemption
Kalshi also argues that conflict preemption applies because Ohio law poses
an obstacle to the accomplishment of Congress’s purpose and because complying
with both sets of law would be impossible. Both arguments fail.
Kalshi first argues that Ohio law poses an obstacle to the accomplishment of
Congress’s purpose in enacting the CEA. (Mot., 15.) In Kalshi’s view, once the
company “was approved as a CFTC-designated contract market, Kalshi was
authorized to list its event contracts by self-certifying that these contracts
comported with federal law. The CFTC had the authority to review that self-
certification on the ground that these contacts were ‘contrary to the public interest,’
7 U.S.C. § 7a-2(c)(5)(C)(i), but chose not to do so.” (Mot., 16.) By extension, Ohio’s
attempt to regulate Kalshi’s conduct “substantially interfere[s] with the CFTC’s
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discretion,” frustrating Congress’s intent to centralize regulation of futures trading
markets.8 (Id., 17.)
First, Kalshi overstates Congress’s intent. As explained above, the CEA’s
text, structure, and history support the conclusion that Congress did not intend to
preclude any and all state action relative to DCMs. See, e.g., 7 U.S.C. §§ 7(a)(1)(A),
16(e)(1). And further, Kalshi overstates its authority. Though a DCM can list any
contract that it self-certifies, the certification does not carry the force of law. Said
another way, the DCM can certify, but cannot conclude, that the contract is lawful.
That authority rests with the CFTC and, if in dispute, with the courts.
Here, in fact, the CFTC prohibits DCMs from listing any event contract “that
involves, relates to, or references . . . gaming[.]” 17 C.F.R. § 40.11(a). That includes,
by Kalshi’s own admission (albeit in separate litigation), “a contract on who’s going
to win the Kentucky Derby” or “the point spread in the Super Bowl[.]” KalshiEx
LLC v. Commodity Futures Trading Comm’n, D.D.C. Case No. 1:23-cv-3257-JMC
(Oral Arg. Tr., ECF No. 40, 14:9–13). Accord KalshiEx LLC v. Commodity Futures
Trading Comm'n, No. CV 23-3257 (JMC), 2024 WL 4164694, at *8, *10 (D.D.C.
Sept. 12, 2024) (adopting Kalshi’s position that “gaming” as used in the CEA “refers
to playing games or playing games for stakes”). This Court does not endeavor to
explain why the CFTC has not exercised its authority under the Special Rule or
§ 40.11(a) with respect to the sports-event contracts. But the agency’s inaction is not
8 Kalshi points out that the CEA seeks to establish nationwide standards for
futures markets—but Congress has done the opposite with gambling, leaving that
topic for the states to govern on a state-by-state basis.
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proof that the sports-event contracts are regulated by or permissible under the
CEA—and the Court has concluded they are not.
Impossibility. Kalshi also argues that it would be impossible to comply
with the CEA’s core principles and Ohio’s sports gambling laws at the same time.
CFTC regulations require DCMs to provide “impartial access to its markets and
services.” 17 C.F.R. § 38.151(b). Meanwhile, Ohio’s sports gambling laws restrict
licensees from accepting wagers made by individuals who are not physically present
in Ohio. Ohio Rev. Code § 3775.11(A). In Kalshi’s view, the CFTC’s impartial-access
rule is in direct conflict with Ohio’s location-based requirements. But Kalshi offers
nothing but its own ipse dixit that the CFTC would view geographic restrictions
predicated on compliance with state law as “partial.”
Kalshi fails to establish a likelihood of success on a conflict preemption
theory.
B. Irreparable Injury
Kalshi next asserts that it will face wide-ranging irreparable injury without
an injunction, including: the threat of civil and criminal enforcement action, harm
to customer goodwill and the company’s reputation, and the cost of implementing
geofencing technologies. Because Kalshi fails to carry its burden on the remaining
three factors, analysis of irreparable injury is unnecessary.
C. Balance of Equities
Because Kalshi seeks an injunction against a state government, the final two
preliminary injunction factors (harm to third parties and the public interest) are
considered together. Churchill Downs, 162 F.4th at 643. Kalshi argues that
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requiring “[i]mmediate compliance with Ohio law . . .will harm Kalshi’s users in
Ohio and impose intractable technological difficulties on a very short timeframe[,]”
thus weighing in favor of the injunction. (Mot., 24.) These concerns are dwarfed by
Ohio’s interest in exercising its police power, enforcing its duly-enacted laws, and
regulating sports gambling to promote the public welfare.9 See Maryland v. King,
567 U.S. 1301, 1303 (2012) (“Any time a State is enjoined by a court from
effectuating statutes enacted by representatives of its people, it suffers a form of
irreparable injury.”). The balance of equities and public interest thus cut in favor of
the State.
IV. CONCLUSION
Because the Court finds that Kalshi has not carried its burden to establish
that the circumstances demand such extraordinary relief, the Motion for
Preliminary Injunction is DENIED.
IT IS SO ORDERED.
/s/ Sarah D. Morrison
SARAH D. MORRISON, CHIEF JUDGE
UNITED STATES DISTRICT COURT
9 This Court has not been called upon to pass judgment on the wisdom or
morality of sports betting. But the Undersigned feels compelled to remark on the
risk Kalshi’s sports-event contracts pose for Ohioans ages 18 through 20. The
General Assembly determined these individuals were too young to participate in
legal sports gambling, see Ohio Rev. Code § 3775.99(A)(2), but they have
unrestricted access to sports-event contracts on Kalshi’s exchange. This population
is particularly vulnerable to problem gambling (Schuler Decl., ECF No. 31-1,
PAEGID # 423) and, when trading on Kalshi, is unprotected by Ohio’s responsible
gaming laws.
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