US appeals courts have varied on the regulation of prediction markets, opening the door to US Supreme Court debate.

A United States appeals court has found that states can regulate prediction markets, ruling against a bid by the company Kalshi to exempt so-called event contracts from state gambling laws.

The Friday ruling by the 6th US Circuit Court of Appeals in Cincinnati is the latest in an unfolding debate about oversight of prediction markets, whose explosive growth has prompted ethical and regulatory questions.

The decision also deepens a divide among federal appeals courts regarding the authority of state and federal regulators to regulate such markets, opening up the possibility that the US Supreme Court could weigh in on the matter.

Two other federal appeals courts have previously addressed questions of whether prediction markets are subject to state gambling laws. The 9th Circuit in San Francisco ruled last month that Kalshi’s event contracts are subject to Nevada’s gambling laws, while the 3rd Circuit in Philadelphia said in April that Kalshi’s contracts are not subject to New Jersey’s.

In Friday’s ruling, Judge Julia Smith Gibbons wrote for the unanimous three-judge panel that Ohio and Tennessee can regulate event contracts under their gambling laws.

Prediction markets have become increasingly popular in the US. They allow users to place bets on everything from sporting events and presidential elections to cultural developments and the prospects of a deal between the US and Iran on the latter’s nuclear programme.

Experts have raised concerns about the proliferation of prediction markets and betting apps, especially for young people.

The state of New York filed a lawsuit against the prediction market Polymarket on Thursday, arguing that it is operating as an unlicensed gambling operation. The company responded by stating that it would “fight for its users”.

“By running an unlicensed gambling operation, Polymarket has done more than just knowingly violate state law, they have put New Yorkers at risk, especially those underage who are most vulnerable to problem gaming,” Governor Kathy Hochul said in a statement.