Strong-minded Attorney General Kris Mayes is examining a recent decision by a federal appeals court that bolsters states’ authority to regulate sports-related prediction market contracts, though the ruling doesn’t settle Arizona’s separate dispute with Kalshi over election betting.
The U.S. Ninth Circuit Court of Appeals ruled on Friday in a case from Nevada that states can enforce their gambling laws on Kalshi’s online sports-event contracts without violating the federal Commodity Exchange Act. The appellate court upheld a lower court’s decision allowing Nevada to enforce its laws against the prediction market operator.
Kalshi had argued that the trades made on sporting events were swaps, a type of derivative regulated by the federal Commodity Futures Trading Commission (CFTC), and therefore subject to federal law. However, the Ninth Circuit disagreed with this position.
The ruling holds significance because Arizona falls within the Ninth Circuit, and Mayes has been pushing for state jurisdiction over prediction markets, including Kalshi and Polymarket, despite facing opposition from the federal government and court rulings favoring federal oversight.
Mayes characterized the ruling as supporting states’ jurisdiction over gambling regulation.
“Kalshi’s position would have essentially federalized sports betting regulation nationwide and disregarded the state and tribal oversight established over decades to protect consumers from the real dangers of unregulated gambling,” she stated in a press release.
However, the ruling does not resolve the issue of whether states can regulate Kalshi’s election-related contracts. The Ninth Circuit has referred the question of Nevada’s authority over election betting back to the district court for further review.
In March, Mayes filed criminal charges against Kalshi, accusing the New York-based company of operating an illegal gambling business and violating state laws prohibiting election betting. The case involved a 20-count criminal information filed in Maricopa County Superior Court and marked the first criminal case brought by a U.S. state against the prediction market operator.
At the time, Kalshi lamented that “a state can file criminal charges on paper-thin arguments.” The company maintained that its operations were different from traditional sportsbooks and casinos and should not be subject to a patchwork of inconsistent state laws.
Arizona’s prosecution of Kalshi was subsequently blocked by a federal judge. U.S. District Judge Michael Liburdi ruled in May that Kalshi operates under CFTC oversight as a designated contract market and that federal law preempts Arizona’s gambling statutes in this case. The ruling prevented Mayes and the Arizona Department of Gaming from continuing to enforce the criminal charges.
The dispute has also attracted direct federal intervention. In April, the U.S. government sued Arizona, Connecticut, and Illinois over their efforts to regulate prediction markets, arguing that oversight of event contracts falls exclusively within the CFTC’s jurisdiction.