The U.S. government is making its clearest case yet that betting on sports can be regulated as finance, not gambling.

In a filing late Tuesday, the Commodity Futures Trading Commission and Department of Justice asked a federal court to block Arizona from enforcing its gambling laws against prediction market operator Kalshi. The agencies argue that contracts tied to sports, elections and other real-world events are financial derivatives known as “swaps,” placing them under federal oversight.

If the courts agree, it could shift control of a fast-growing market away from states and into Washington, allowing prediction platforms to operate nationwide under a single set of rules.

But at the center of the case is a simple question: what exactly constitutes a bet?

Arizona and a growing number of states say contracts on sports outcomes function just like traditional wagers and should be regulated as gambling, with licensing requirements, age restrictions, and consumer protections.

Arizona has gone further than most, however, filing criminal charges against Kalshi under state betting laws, with an arraignment scheduled for April 13.

Federal regulators see it differently. In their filing, they argue that what matters is how the contracts are structured, not what they track. Because the payouts depend on whether a future event happens, and that event can have economic consequences, the products fall under the same legal framework as derivatives tied to commodities or interest rates.

That interpretation would put prediction markets firmly under the Commodity Exchange Act, where the CFTC has what it describes as “exclusive jurisdiction.” It would also limit the ability of individual states to shut down or restrict these platforms, something regulators warn would otherwise create a fragmented, state-by-state system.

The legal fight has been building for months and is now starting to produce conflicting rulings. As CoinDesk previously reported, a federal appeals court in New Jersey recently sided with Kalshi, finding that its sports contracts are presumptively allowed under federal law unless the CFTC intervenes. But courts in other jurisdictions have been more receptive to state arguments, allowing enforcement actions to move forward.

In its filing, the government warned that allowing states to prosecute federally regulated exchanges would undermine a national market that Congress intended to oversee at the federal level.

If courts ultimately accept the CFTC’s position, prediction markets could operate nationwide under a single federal framework, effectively bypassing the state-by-state system that governs sports betting today. If they reject it, the products could be forced into existing gambling regimes or shut down altogether in key jurisdictions.

For now, the federal government is taking an expansive view of its authority, arguing that a contract on the Super Bowl is not fundamentally different from one tied to oil prices or interest rates.

Courts now have to decide if that comparison holds.