US appeals court says states may regulate prediction markets

A United States appeals court has ruled that states may regulate prediction markets, rejecting Kalshi’s argument that its event contracts should be exempt from state gambling laws. The unanimous three-judge panel of the Sixth US Circuit Court of Appeals in Cincinnati said Ohio and Tennessee could regulate the contracts under their gambling laws. The ruling is the latest development in a growing dispute over oversight of prediction markets.

Prediction markets allow users to place contracts linked to events including sports results, presidential elections, cultural developments and possible international agreements. Their rapid expansion has prompted concerns about regulation, ethics and the exposure of young people to betting applications. The decision adds to a split between federal appeals courts.

The Ninth Circuit in San Francisco ruled last month that Kalshi’s contracts were subject to Nevada gambling laws, while the Third Circuit in Philadelphia ruled in April that the contracts were not subject to New Jersey’s laws. The conflicting decisions raise the possibility that the US Supreme Court could eventually consider the issue. The central question is how event contracts should be classified and whether federal oversight prevents states from applying their gambling regulations.

The legal dispute is unfolding alongside action against other prediction-market operators. New York filed a lawsuit against Polymarket on Thursday, alleging that it was operating as an unlicensed gambling operation. New York Governor Kathy Hochul said unlicensed operations put residents, particularly underage people vulnerable to problem gambling, at risk.

Polymarket said it would fight for its users. The court’s decision does not resolve the wider national debate, but it strengthens the position of states seeking authority over markets that operate within or reach their jurisdictions.