The Commission Writes a Bill: Ohio Fines Kalshi Five Million While the Circuits Still Argue

Ohio did not wait for the Sixth Circuit. On Tuesday, April 14, 2026, the Ohio Casino Control Commission posted a notice of intent to impose a five-million-dollar civil penalty on KalshiEX LLC, the New York-based prediction market operator whose sports event contracts have become the most contested product in American gaming. The notice did not arrive as a surprise. It arrived as a schedule. Five weeks earlier, Chief Judge Sarah D. Morrison of the Southern District of Ohio had denied Kalshi's preliminary injunction, telling the company in blunt prose that it had not made "a clear showing" that federal derivatives law preempts Ohio's sports wagering statute. Eight days earlier, on April 6, the Third Circuit had gone the other direction in KalshiEX LLC v. Flaherty, affirming a preliminary injunction against New Jersey. Between those two panels sits the question the Commission is now forcing: what does a state do when one circuit says a federal statute takes the field and another says it does not, and the Ninth Circuit is still two days from oral argument?

The Commission's answer is: collect.

The factual record

The OCCC's notice of intent is a three-count instrument. The Commission charges Kalshi with (i) operating or conducting sports gaming in Ohio without a license in violation of Ohio Revised Code Chapter 3772 and the Ohio sports gaming code at ORC Chapter 3775, (ii) failing to cooperate with the Commission and specifically disregarding a cease-and-desist order first issued in March 2025, and (iii) conducting itself in a manner that "undermines the integrity of, or public confidence in, sports gaming in Ohio." Kalshi has, by the Commission's accounting, offered sports event contracts to Ohio residents continuously from January 2025 forward without a license, without an Ohio vendor registration, without paying the ten percent gross gaming revenue tax on sports wagering, and without remitting the two hundred fifty thousand dollar annual Type A license fee that every other operator in the state paid to stand on the same floor.

The fine carries a thirty-day window. Under ORC 3772.04 and the Commission's adjudication rules at Ohio Administrative Code 3772-2, Kalshi may request an administrative hearing, which would be conducted before a hearing examiner, with de novo review available in the Franklin County Court of Common Pleas. If Kalshi does not request a hearing, the fine becomes final. If Kalshi does request one, the matter moves onto a schedule that will run roughly parallel to its federal appeal at the Sixth Circuit, where its notice of appeal is now docketed as No. 26-3196.

Attorney General Dave Yost posted on X within the hour: "Ohio put Kalshi on notice today that its 'prediction markets' are unlawful gaming and proposed a $5 million fine. A federal court already agreed with our reading of the law. I wouldn't bet on how long Kalshi will be operating in Ohio." Kalshi's head of communications, Elisabeth Diana, responded in a now-familiar cadence: the company is "a federally regulated exchange subject to exclusive federal jurisdiction," the Commission lacks authority, and the matter belongs in federal court. Both statements are partly correct. That is the entire problem.

Why this qualifies: the enforcement beat

This is an enforcement action in the most specific sense. It is not a speech at a regulators' conference. It is not a bill in committee. It is a paper with a number on it, and the number creates a private cause of action for the Commission to collect if Kalshi does not pay or litigate. Every operator in gaming who watched the CFTC sue Arizona, Connecticut, and Illinois on April 2 and concluded that the federal government had taken over the dispute now has a counterexample: a state commission, unmoved by the pendency of federal litigation, proceeding under state administrative law to fine a federally registered Designated Contract Market. Ohio is not waiting for the Ninth Circuit. Ohio is not waiting for the CFTC's own complaint cycle. Ohio is doing what state commissions were built to do, which is regulate the conduct of gaming within state lines, and letting the preemption defense ride on an appeal someone else is running.

A. Recent and ongoing case law

The anchor case is **Kalshiex LLC v. Schuler**, No. 2:25-cv-01165 (S.D. Ohio). Kalshi filed in October 2025 seeking a declaratory judgment and a preliminary injunction against the OCCC's commissioners in their official capacity. The company argued that its sports event contracts, listed on a CFTC-registered DCM and self-certified under 17 C.F.R. §40.2, are squarely within the Commodity Exchange Act's exclusive jurisdiction under 7 U.S.C. §2(a)(1)(A), that Ohio's application of its sports gaming statute to those contracts is both field- and conflict-preempted, and that the Commission's cease-and-desist order constituted irreparable harm.

Chief Judge Morrison's March 9, 2026 Opinion and Order (ECF No. 69) denied the motion. Her reasoning tracked four points worth quoting for the record. First, she held that the CEA's special-rule provision at §5c(c)(5)(C) permits the CFTC to review certain event contracts for compatibility with the public interest, including contracts on "gaming," and that Congress would not have given the CFTC that review authority if it had simultaneously preempted all state gambling regulation of the same contracts. Second, she noted that the CFTC has never issued a binding determination that Kalshi's sports event contracts survived §5c(c)(5)(C) review, only a lapse of the ninety-day self-certification window, which she characterized as "administrative silence, not affirmative approval." Third, she rejected field preemption, writing that the historical police power of states to regulate gambling is "among the most traditional" and that congressional intent to displace it "must be clear and manifest." Fourth, on the balance of equities, she found Kalshi could not claim irreparable harm from being required to comply with the same laws every licensed sportsbook in Ohio complied with.

Kalshi's appeal to the Sixth Circuit (No. 26-3196) was filed immediately. Briefing is underway. Oral argument is unlikely before fall 2026.

Compare the **Third Circuit's April 6, 2026 ruling in KalshiEX LLC v. Flaherty**, No. 25-2204 (3d Cir.). A divided panel affirmed the District of New Jersey's preliminary injunction, holding that the CEA likely preempts state gambling laws as applied to sports event contracts. Judge Roth's dissent argued that the majority had confused federal authority to register an exchange with federal authority to license every product the exchange lists, and that Kalshi's contracts were "virtually indistinguishable" from state-licensed sportsbook wagers. The Third Circuit's opinion is the first federal appellate holding on the merits. It is binding in New Jersey, Pennsylvania, Delaware, and the Virgin Islands. It is persuasive elsewhere and, crucially, not binding on the Sixth Circuit.

The **Ninth Circuit's consolidated oral argument on April 16, 2026** — two days from the Commission's notice — will cover KalshiEX LLC v. Nevada Gaming Control Board and companion appeals by Robinhood and Crypto.com. A decision there in Kalshi's favor would cement the circuit split. A decision against Kalshi would isolate the Third Circuit. Either way, Ohio's $5 million notice keeps the state's own leverage intact while that scoreboard resolves.

Two additional live actions matter for the frame. The **CFTC and DOJ's April 2, 2026 suits against Arizona, Connecticut, and Illinois** in their respective district courts, captioned as United States v. Mayes (D. Ariz.), United States v. Tong (D. Conn.), and United States v. Raoul (N.D. Ill.), ask for declaratory and injunctive relief that state enforcement is preempted. Ohio is not a named defendant, but the theory is the same, and Ohio's enforcement is directly in the federal government's line of fire. The **Polymarket class action**, Yoon v. Polymarket, No. 1:26-cv-01198 (S.D.N.Y.), filed February 11, 2026, is the private-law mirror: it alleges that prediction market contracts on sports are illegal sports wagers under state law and seeks to represent a nationwide class of losing traders. The plaintiff's theory travels if the Sixth Circuit agrees with Morrison.

B. Historical precedent

Two cases frame Ohio's posture. The first is **Murphy v. NCAA**, 138 S. Ct. 1461 (2018), which struck down the Professional and Amateur Sports Protection Act on anticommandeering grounds and returned sports betting to state police power. Ohio's sports gaming statute was enacted in 2021 in direct reliance on Murphy. Every feature of that statute — the license structure, the tax rate, the geolocation and identity-verification requirements, the integrity-monitoring mandates — was drafted against the premise that states are the primary regulators of sports wagering within their borders. Kalshi's preemption argument asks the Sixth Circuit to subordinate Murphy's regulatory dividend to a 1974 commodities statute written before sports betting was a lawful commercial product anywhere in the country. That is the fight.

The second is **United States v. DiCristina**, 886 F. Supp. 2d 164 (E.D.N.Y. 2012), rev'd 726 F.3d 92 (2d Cir. 2013). The Second Circuit's reversal held that poker is "gambling" under the Illegal Gambling Business Act regardless of the skill content of the game, because the statute defines gambling operationally. Ohio's sports gaming statute takes the same operational approach: ORC 3775.01(A)(11) defines "sports gaming" as accepting wagers on sporting events, without reference to whether the wager is structured as a contract, a pool, a parlay, a prop, or an event contract cleared through a DCM. DiCristina's logic supports the Commission's position that form does not defeat substance.

A longer shadow falls from **Cabazon Band of Mission Indians v. California**, 480 U.S. 202 (1987), and the Indian Gaming Regulatory Act of 1988. The arc of American gaming law has been the progressive recognition that regulation of chance-based activity is a state-level function, constrained by specific federal statutes (IGRA, UIGEA, the Wire Act) but not generally displaced. Kalshi's theory inverts that arc: it asks that a general federal commodities statute, originally written for wheat, do the work that specific federal gambling statutes have declined to do.

C. Regulation, rulemaking, legislation in motion

The live regulatory dockets to watch, with identifiers:

The **CFTC's reopened rulemaking on event contracts**, RIN 3038-AF20, which closed its comment period in January 2026, is now in final-rule drafting. The proposed rule would define "gaming" under §5c(c)(5)(C) to expressly include contracts on the outcomes of sporting events, and would instruct the Commission to review such contracts for consistency with state law. If adopted, the rule undercuts Kalshi's preemption theory at its root.

**Ohio HB 298** (2025–2026 session), introduced in February 2026, would amend ORC 3775 to explicitly cover "event contracts, prediction markets, and any other financial or quasi-financial instrument whose payout depends on the outcome of a sporting event occurring in Ohio or involving an Ohio team." It has passed the House Finance Committee. If enacted, it closes any ambiguity about whether Ohio's statute reaches Kalshi's product.

**California AB 831** — already familiar to readers from Maine's and Indiana's sweepstakes bans — contains language at §19850.1 that would reach prediction market vendors under its "knowingly facilitates" prong. Its constitutional challenge is pending in the Eastern District of California.

**Federal: the DOJ's trio of preemption suits** (AZ, CT, IL) and the **CFTC's companion declaratory filings** are the federal counterweight. A Trump-era DOJ that has filed on Kalshi's side is a new fact; it does not bind state commissions, but it signals that a federal motion to intervene in Ohio's administrative proceedings is a live possibility.

**Tribal: the National Indian Gaming Commission** has not publicly intervened, but IGRA compact amendments in several states expressly name "sports wagering" as a Class III activity requiring tribal-state compact authorization. If Kalshi's contracts are sports wagering, tribal operators in states like Connecticut, Michigan, and Arizona have compact-based claims independent of state statute.

D. Points of contention

The fight is cleanest when reduced to four disagreements.

First, **field preemption versus traditional state police power**. Kalshi argues the CEA occupies the field of derivatives regulation and that event contracts, once self-certified on a DCM, are derivatives. Ohio argues that the police power over gambling is one of the most traditional state functions, that Congress in 2010 (Dodd-Frank's insertion of §5c(c)(5)(C)) explicitly contemplated coexistence, and that the savings clause in §16(e) of the CEA preserves state antigambling law.

Second, **the meaning of CFTC "review" under §5c(c)(5)(C)**. Kalshi treats the ninety-day self-certification window as functional approval. Ohio treats it as procedural silence. Chief Judge Morrison adopted Ohio's reading. The Third Circuit adopted Kalshi's reading. The Ninth Circuit has yet to rule.

Third, **form versus substance**. Kalshi argues that a cash-settled, exchange-traded, centrally cleared contract is categorically different from a sports wager at a book. Ohio argues that when the economic interest of the holder is "Team A beats Team B," the wrapper does not change the nature of the bet. This is the DiCristina logic applied to a new product.

Fourth, **remedy and forum**. Kalshi argues that state administrative proceedings against a federally regulated entity should be enjoined, and that litigation belongs in federal court. Ohio argues that Younger abstention and ordinary principles of administrative exhaustion put the Commission's proceeding at the front of the queue. Morrison agreed with Ohio.

Each of these four fights has a strongest and weakest version. Kalshi's strongest argument is that if every state can criminalize a CFTC-regulated product, the federal derivatives framework becomes unworkable. Its weakest is that its contracts look, function, and market exactly like sportsbook wagers, and the CFTC has never squarely approved them. Ohio's strongest argument is historical: Murphy returned sports wagering to the states, and nothing in the CEA says otherwise. Its weakest is the risk that courts see the Commission's $5 million fine as punitive toward a federally chartered entity and read the CEA generously to avoid that result.

E. Our analysis: interpretation, implications, operator response

**For existing operators with sports wagering products**: the Ohio action is a gift. It validates the licensing regime, raises the cost of the unlicensed competitor, and gives every state-regulated book a clean talking point in legislative hearings. Operators with Ohio licenses should (i) document their compliance costs for 2025–2026 and share those numbers with the Commission as intervenor briefing in any Kalshi administrative hearing, (ii) review marketing co-op agreements with any platform that may be arguing federal preemption (Kalshi, Robinhood, Crypto.com, Polymarket) to ensure no indemnity or channel-payment exposure, and (iii) prepare a parallel posture in Michigan, Pennsylvania, and Massachusetts, which have commissions structurally similar to Ohio's and are likely to follow if Kalshi's Sixth Circuit appeal stalls.

**For founders building something adjacent**: the decision tree has sharpened. If your product has any component that pays out based on the outcome of a sporting event, and you are structuring as a federally regulated exchange to avoid state licensure, you are now operating in a market where (i) the Third Circuit has your back, (ii) the Sixth Circuit has not, (iii) state commissions are willing to fine first and litigate second, and (iv) the CFTC's own rulemaking is pointed at constraining your structural argument. Build three scenarios into your pro forma: (a) Sixth Circuit affirms Morrison, leaving the circuit split and inviting more state actions; (b) Sixth Circuit reverses, consolidating the Kalshi-friendly line; and (c) Supreme Court grants cert in late 2026 or 2027. Under (a), your fundraising narrative must include a state-licensing optionality plan and a capital reserve for fines. Under (b), you still face Ohio's administrative fine until paid or enjoined. Under (c), you freeze product expansion in contested states and concentrate on prediction categories outside sports (economic indicators, weather, elections where still permitted).

**For vendors and service providers**: the Commission's cooperation charge matters. Payment processors, geolocation vendors, KYC providers, integrity monitors, and marketing affiliates that serve Kalshi in Ohio now have documented notice that the platform is operating without a license and in violation of a cease-and-desist order. California's AB 831 "knowingly facilitates" liability is the template; other states will follow. Vendors should (i) require indemnity for state administrative actions in their Kalshi agreements or price the risk, (ii) implement state-level service suspension triggers in their contracts, activated on the issuance of a state cease-and-desist, and (iii) avoid publicly promoting sports event contract volume in states where the platform is under a C&D.

Founder's Playbook

Three moves, in order of how quickly they pay back.

First, stop treating federal registration as a state-law safe harbor. Chief Judge Morrison's opinion is the clearest judicial statement yet that a DCM listing plus the CEA does not, by itself, overcome a state gambling statute. If your compliance memo still says "we are CFTC regulated, therefore state law does not apply," rewrite it. The memo that ages well says "we are CFTC regulated; state-law defenses are pending; here is our jurisdiction-by-jurisdiction risk map and reserve."

Second, build the reserve. Five million dollars is one state. Kalshi now faces administrative proceedings or litigation in, at minimum, Nevada, New Jersey (won on appeal), Ohio (lost at district, pending at circuit), Montana (sued the state), Arizona (criminal charges pending), Washington (civil suit filed), Illinois (federal suit pending), Connecticut (federal suit pending), Massachusetts (C&D outstanding), and Michigan (C&D outstanding). A ten-state reserve at Ohio-comparable exposure is $50 million, before legal fees. Operators with smaller balance sheets cannot absorb that.

Third, differentiate your product from the fight. If your prediction market lists contracts on economic indicators, weather, logistics outcomes, or corporate events, you are not in the Ohio line of fire. The line is sports. Product managers should map every listed contract to its state-gambling-law exposure. Contracts that look like sports wagers to a reasonable regulator should be geofenced or delisted in states with active C&Ds until the circuit split resolves.

Watch-list

Next thirty days: the Ninth Circuit's decision in the consolidated Kalshi/Robinhood/Crypto.com appeals (argued April 16); Kalshi's decision whether to request an Ohio administrative hearing or pay; any motion by the DOJ to intervene in the Ohio proceeding; action by Michigan, Massachusetts, or Pennsylvania to follow Ohio's fine template; and the CFTC's publication of its final event-contracts rule. Next ninety days: Sixth Circuit briefing on Kalshiex v. Schuler; resolution of the AZ, CT, IL federal preemption suits; the Ohio hearing examiner's scheduling order if Kalshi elects administrative process; and any cert petition from whichever side loses at the Third or Ninth Circuit.

The Commission did not write a manifesto. It wrote a bill. That is the part of regulatory strategy that operators who grew up in venture-funded prediction markets have consistently underestimated: at the end of the argument about which sovereign regulates the product, there is a commission, a statute, and a number. Ohio has now written the number down.