Arizona’s gaming regulator has joined the state-by-state crusade against prediction markets by targeting Kalshi and others in response to the event contracts they offer on sports and other markets.
The Arizona Department of Gaming (ADG) told SBC Americas on Thursday that it has sent cease-and-desist orders to both Kalshi and Crypto.com.
SBC Americas also asked whether a similar notice had been sent to Robinhood, which partners with Kalshi on event contracts, but that was not confirmed by the ADG spokesperson. While Crypto.com was the first of those three companies to offer widely available sports contracts, Kalshi has become the poster child for a standoff that has spread across the country.
Arizona is the seventh state to confirm that it has sent an order to Kalshi, after Nevada, New Jersey, Maryland, Montana, Ohio and, most recently, Illinois. Others such as Massachusetts, Michigan, Pennsylvania and Connecticut have launched investigations but not taken the firmer action of other states.
‘No meaningful difference’ between sports trading and sports betting
In the letters to Kalshi and Crypto.com, which were obtained by SBC Americas, the ADG asserts in its C&Ds that the companies are offering unlicensed event wagering in contravention of state law.
“Whether a contract will pay its buyer depends on whether that person correctly predicted the result of the event and bought a contract for the correct outcome,” stated both letters. “This amounts to [the company] taking wagers, defined in A.R.S. § 5-1301(23)(a) as ‘a sum of money or thing of value risked on an uncertain occurrence.’
“‘Event wagering’ is defined in Arizona to mean, ‘accepting wagers on sports events or other events… by any system or method of wagering, including in person or over the Internet through websites and on mobile devices.’ … [The company] is not licensed and its operation of event wagering in Arizona is illegal.”
The ADG also noted that each of Kalshi and Crypto.com have made an “attempt to legitimize its conduct” by labeling it as an “innovation” and “sports event trading,” respectively, and that both companies assert that their activities fall under the regulatory purview of the Commodity Futures Trading Commission (CFTC).
“There is no meaningful difference between buying one of your offered contracts and placing a bet with any other sportsbook,” added each letter. “… The Department requires that [the company] cease gambling operations in Arizona and desist from engaging in those activities in the future.”
Unlike some other states’ cease-and-desist notices, the ADG’s letters did not stipulate a date for the companies to comply.
Kalshi reiterates stance on regulation
Kalshi and its CEO Tarek Mansour have repeatedly defended their sports contracts in response to states’ enforcement efforts, even taking the regulators in Nevada, New Jersey and Maryland to court.
In both Nevada and New Jersey, Kalshi successfully gained temporary restraining orders against the regulators.
The crux of the operator’s argument, as alluded to by the ADG’s letters, is that the federal government has the exclusive right to regulate the kind of trading that is offered by Kalshi and Co. Kalshi maintains it falls under the jurisdiction of the CFTC, not state gambling authorities.
“Kalshi remains under the exclusive jurisdiction of the CFTC,” a Kalshi spokesperson told SBC Americas on Thursday. “We have the utmost respect for the regulatory process and look forward to resolving the matter.”
Crypto.com also recently joined Kalshi in filing suit against Maryland Lottery and Gaming. State regulators have argued back against Kalshi, with Maryland’s regulator asserting earlier this month that sports event contracts fall under the CFTC’s special rule regarding gaming and also lack the economic impact necessary to meet the definition of a commodity swap.
