The Arizona Department of Gaming (ADG) sent a letter to licensed operators in the state warning them that offering event contracts without a license violates state law.
In the letter, obtained by SBC Americas and dated Sept. 15, the ADG cautioned fantasy and sports betting operators that offering event contracts or partnering with prediction market platforms directly or indirectly to facilitate event contracts trading “outside the framework of state gambling laws” could put their state wagering licenses in jeopardy.
Gambling industry consultant and reporter Dustin Gouker was the first to report the news.
The ADG warned operators of potential law violations after sending cease and desist orders to event contract providers, Kalshi, Robinhood and Crypto.com. The regulator declined to provide any additional comment to SBC Americas.
Licenses could be revoked
The ADG shared its stance on prediction markets after ADG leadership requested information from licensed operators related to designated contract markets (DCMs) and the selling of contracts on sports events. The ADG wrote in the letter that it received several responses from operators indicating plans to acquire an existing DCM or become a DCM or a futures commission merchant (FCM), or to partner with a DCM or FCM to offer or sell event contracts outside of Arizona gaming law.
An FCM, like Robinhood, accepts customers’ money on orders to buy or sell futures or swaps contracts, while DCMs like Kalshi and FanDuel’s new partner CME Group set and operate the markets.
The ADG stated in its letter that the potential penalties for offering event contracts or partnering with a prediction market without a proper license include revoking or suspending operators’ wagering licenses. The ADG is also allowed to place conditions on a license, which can include fines and other sanctions.
ADG Director Jackie Johnson stressed in the letter that licensees would be scrutinized for involvement with prediction markets regardless of whether the activity happens inside or outside Arizona.
“Even if the licensee is not associated directly with the offering or sale of event contracts to persons in Arizona, its relationship with other persons or entities and conduct in other jurisdictions remains at issue,” wrote Johnson.
“For example, if the Department believes that an entity related to a licensee is partnered with a company that is selling event contracts in a jurisdiction outside Arizona in violation of the laws of that jurisdiction, that might (depending on circumstances) impact a licensing decision.
“All of us have a responsibility to uphold the integrity of gaming in Arizona. Neither the citizens of this state nor your gaming operations are, in the long run, served by illegal, unlicensed and/or unregulated gambling.”
Ohio regulator also sends notice about prediction markets
The ADG is the latest state gaming regulator to sound the alarm over prediction markets.
Last month, the Ohio Casino Control Commission (OCCC) sent a letter to operators about offering sports event contracts without a license. It has also sent cease-and-desist orders to sports event contract providers, including Kalshi.
ADG sends C&Ds
The ADG also sent C&Ds to both Kalshi and Crypto.com in May for offering unlicensed event wagering, violating state law. The regulator also took notice of Kalshi and Crypto.com’s efforts to legitimize their operations by labeling them as “sports event trading.”
Johnson previously criticized the Commodity Futures Trading Commission (CFTC) for failing to take action against the prediction markets offering sports event contracts.
Johnson sent a letter to the federal derivatives regulator just two weeks after sending the C&Ds to Kalshi and Crypto.com.
