Three 9th Circuit Court of Appeals judges appeared skeptical of arguments by attorneys for Kalshi and two other prediction markets that Nevada gaming regulators are unfairly keeping the businesses out of the state.

During a more than two-hour hearing in San Francisco involving the Nevada Gaming Control Board's lawsuits against Kalshi and two other prediction market operators, Crypto.com and Robinhood Derivatives, the judges sought to distinguish the business differences from Nevada's regulated sportsbooks and the companies that are regulated federally by the federal Commodity Futures Trading Commission (CFTC).

"Explain to me the difference between a sports bet that happens in Caesars and a sports bet with [a prediction market]?" Judge Ryan Nelson asked an attorney for Crypto.com. "The waters have been muddied, but that happens all the time."

Judge Bridget Shelton Bade, who is based in Phoenix, remarked that Kalshi seems to be advertising heavily in her home state.

"I think I see one of these ads almost every day on my phone," Bade said. "It's a lost cause. I don't care about sports. So you can tell them to stop sending them to me, but it seems like they are advertising this as sports betting."

During the hearing, when a national reporter speculated on social media that the hearing wasn't going well for prediction markets, Florida-based gaming attorney and legal analyst Daniel Wallach wrote on X that it was the "understatement of the year."

In a separate case last week involving New Jersey, the 3rd Circuit Court of Appeals ruled 2-1 in favor of Kalshi, which could prevent the state from regulating the prediction market. More than 20 states have various legal challenges involving prediction market companies.

Analysts believe the matter will ultimately be decided by the U.S. Supreme Court. 

Nelson, who is from Idaho Falls, Idaho, and oversaw the hearing, said the judges would quickly make a ruling.

Nicole Saharsky, an attorney with Mayer Brown in Washington, D.C., who represented Nevada gaming regulators, said the cases brought before the court constitute "a severe intrusion on state sovereignty. Their position is that all sports bets would qualify as swaps. That would make the CFTC the nation's gaming regulator."

Saharsky said the challenges to state gaming laws would effectively nullify the 2018 U.S. Supreme Court ruling that allowed individual states to legalize sports betting.

"The Supreme Court was very clear. It's the states that get to make the decisions on gaming," Saharsky said.

Nelson suggested the prediction market efforts could be "a sea change" for Nevada's gaming industry. 

"It would be a huge deal. It would take away the power from the states," he said.

Two of the prediction markets, Crypto and Robinhood, voluntarily agreed to cease and desist orders issued by Nevada regulators, to allow the legal proceedings to play out.

In March, Carson City District Court Judge Jason Woodbury issued a temporary ban on Kalshi from operating in Nevada, which is set to expire on Friday. Jessica Whelan, chief deputy solicitor general for the Nevada Attorney General's Office, said the state and Kalshi agreed to extend the ban for another week while the sides work out the language for a longer ban.

An attorney for Kalshi told the court that Nevada's actions to block the company from operating put the prediction market in violation of the CFTC's impartial access, which requires offering the same product nationwide.