A conflict between the federal government and state governments over regulatory authority for a fast-growing prediction-market platform in the United States has entered a new phase. The Ninth U.S. Circuit Court of Appeals on Aug. 28 local time rejected a request by prediction-market operator Kalshi to block Nevada from applying its gambling laws.

The New York Times reported that the panel ruled Kalshi's sports event contracts did not qualify as financial products known as “swaps.” Judge Ryan Nelson said the contracts could be subject to state gambling regulation because they are essentially sports betting.

The ruling is seen as recognizing state regulatory authority over prediction markets. Kalshi has rapidly expanded its trading volume this year by offering products allowing bets on the outcomes of various events, including elections, sports and reality programs. This has prompted lawsuits in 20 U.S. states over whether prediction markets should be subject to existing gambling laws.

The central issue is whether prediction-market “event contracts” should be viewed as financial products. Kalshi has argued that because the products are financial contracts overseen by the Commodity Futures Trading Commission, state governments cannot intervene.

The ruling, however, directly clashes with an April decision by the Third U.S. Circuit Court of Appeals. The Philadelphia-based Third Circuit at the time found Kalshi's sports event contracts were swaps under the Commodity Exchange Act and said federal regulation takes precedence over state law.

The Commodity Futures Trading Commission said the Ninth Circuit ruling had effectively created a “conflict between courts” and that a decision by the U.S. Supreme Court was needed. Nevada's attorney general welcomed the ruling, saying it confirmed states' regulatory authority.

Kalshi said it would seek further review.