CINCINNATI, Ohio: Prediction markets operator Kalshi lost a legal challenge on Friday after a U.S. appeals court ruled that Ohio and Tennessee can regulate its sports event contracts under their gambling laws.

The unanimous decision by a three-judge panel of the 6th U.S. Circuit Court of Appeals deepens a split among federal appeals courts over whether states or the Commodity Futures Trading Commission should regulate the fast-growing industry. The disagreement raises the possibility of a U.S. Supreme Court review.

Circuit Judge Julia Smith Gibbons wrote that Kalshi had failed to show its sports event contracts were "swaps" subject exclusively to CFTC oversight. She also found that the federal Commodity Exchange Act did not preempt the gambling laws of Ohio or Tennessee.

Friday's decision overturned a preliminary injunction that had prevented Tennessee from enforcing its gambling laws against Kalshi. The appeals court also upheld an Ohio federal judge's refusal to grant a similar injunction.

Kalshi said it did not expect the ruling to survive further legal review.

"The ruling shows exactly why a state-by-state patchwork doesn't work," Kalshi spokesperson Dani Lever said. "Markets can't operate when the rules change at every state line, which is why Congress created a single federal regulator with nationwide rules."

Prediction markets allow users to wager on the outcomes of sports events and other subjects, including elections, weather and cultural events.

Gibbons said swaps generally involve financial measures, indices and instruments used to hedge risks, rather than gaming-related contracts. She wrote that gambling regulation "lies at the heart of the state's police power," and that Congress had given states primary responsibility for deciding which forms of gambling could operate within their borders.

The Commodity Exchange Act's "core purpose" was to protect the national interest by providing ways to manage and assume risk and obtain pricing information, she said.

"It is, therefore, difficult to see how determining the probability that a certain number of corner kicks will be taken in a given soccer game or that a 30-leg parlay will hit would serve (to) advance those goals," Gibbons wrote.

Other federal appeals courts have reached different conclusions. The 9th Circuit ruled last month that Kalshi's event contracts were subject to Nevada's gambling laws, while the 3rd Circuit ruled in April that its contracts were not subject to New Jersey's gambling laws. New Jersey has asked the Supreme Court to overturn the latter decision.

Tennessee Attorney General Jonathan Skrmetti called Friday's ruling a "great win" for his state.

"Sports wagering is heavily regulated because it can do a lot of harm, and I'm glad we thwarted Kalshi's efforts to remove every safeguard and put Tennessee sports bettors at risk," he said.

The office of Ohio Attorney General Andy Wilson did not immediately respond to a request for comment.