Judge rules Arizona can't regulate prediction market operators, halts Kalshi case

Arizona won't get a chance to try to shut down an online wagering site -- at least not yet.

In an order late Friday, U.S. District Court Judge Michael Liburdi blocked a proposed hearing set for Monday, where Kalshi LLC had been ordered to appear in Maricopa County Superior Court to answer charges by Attorney General Kris Mayes that it violated 20 separate state laws that make most forms of gambling a crime. 

The judge said there are legal issues that need to be resolved over any conflict between state and federal laws.

Strictly speaking, Liburdi has not accepted arguments by the Commodities Future Trading Commission (CFTC) that letting the state enforce its criminal laws interferes with the agency's authority to regulate what it calls "events contracts.''

These are wagers that pay out depending on the outcome of something set to happen in the future.

But Liburdi did accept arguments by the federal agency that there is no immediate harm to the state if it cannot immediately pursue those criminal charges while the question of federal preemption is litigated.

The federal Commodity Futures Trading Commission had sued Arizona in response to cease-and-desist letters sent to Kalshi from state gambling regulators and the criminal charges filed against the prediction market operator. The commission argued Arizona is intruding on its exclusive federal power to regulate national swaps markets.

Liburdi had previously denied Kalshi’s attempt to bar prosecutors from moving forward with the case and declined a request from the company for a ruling saying federal law trumps Arizona’s gambling laws. Liburdi said it was too early in the case for him to rule on that issue.

State prosecutors have charged Kalshi with 20 misdemeanor counts of wagering for allegedly accepting bets on political outcomes, college sports and individual player performance.

Arizona, the first state to file criminal charges against Kalshi, prohibits operating an unlicensed wagering business and betting on elections. The criminal charges mark a new front in a high-stakes legal battle over whether prediction markets should be subject to the same rules as gambling companies.

Kalshi maintains it’s a financial marketplace rather than a gambling operation and should only have to answer to the federal Commodities Futures Trading Commission, not the state of Arizona.

“The attorney general's office disagrees with the court's ruling and we will evaluate our next steps,” said Richie Taylor, a spokesperson for the Arizona Attorney General's Office. The Associated Press sent emails to Kalshi and the federal commission seeking comment.

Kalshi operates by allowing customers to buy and sell “Yes” or “No” contracts tied to the probable outcome of an event. It has said its product is different from gambling operations because Kalshi’s customers engage in “swaps” between one another instead of betting against the “house.”

In a lawsuit filed just days before prosecutors leveled the criminal charges, Kalshi argued federal law trumps Arizona’s efforts to subject it to state statute. It also contends that shutting down its ability to offer event contracts would threaten its viability, undermine confidence in the integrity of its platform and cause other problems for the business.

The company said Arizona filed the charges to interfere with its lawsuit.

Lawyers for the state contend Kalshi has marketed itself as a platform for sports and election betting and that Arizona should be able to enforce its gambling laws to hold Kalshi accountable for flouting state law.

Kalshi sued Arizona, Utah and Iowa in attempts to stop anticipated state actions against the platform. Other states have taken some form of legal action against Kalshi.

So far, the outcomes have been mixed. Federal and state judges in Nevada and Massachusetts, respectively, issued early rulings in favor of states looking to ban Kalshi and its competitor Polymarket from offering sports being in their states, while federal judges in New Jersey and Tennessee have ruled in favor of Kalshi.

Earlier this month, the federal government filed lawsuits against Connecticut, Arizona and Illinois challenging their efforts to regulate prediction market operators.

The Trump administration has so far backed the platforms.

President Donald Trump’s eldest son is an adviser for both Kalshi and Polymarket and an investor in the latter. Trump’s social media platform Truth Social is also launching its own cryptocurrency-based prediction market called Truth Predict.