Arizona has issued a cease-and-desist letter to prediction markets operator Kalshi, joining the six states that took the same action last month.
Douglas Jensen, chief law enforcement officer for the Arizona Department of Gaming (ADG) wrote in the letter,
“Kalshi is not licensed and its operation of event wagering in Arizona is illegal.”
The ADG also sent orders to Kalshi’s partner, Robinhood, and Crypto.com regarding the platforms’ expansion into sports betting markets. The letter explains that, “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.”
No difference between buying an event contract and sports betting
The letter went on to state that Jensen believes the option to buy a contract on the outcome of a sporting event is no different from sports betting. Kalshi has claimed the CFTC holds exclusive jurisdiction over the validity of its markets, but the ADG also refutes this claim.
The letter stated, “The Department recognizes Kalshi’s attempt to legitimize its conduct by labeling it as an ‘innovation’ regulated by the Commodity Futures Trading Commission.
“In fact, there is no meaningful difference between buying one of your offered contracts and placing a bet with any other sportsbook. And, Kalshi is avoiding regulatory requirements in Arizona to include licensing and background investigations, the prohibition on wagers by persons under twenty-one (21) years of age, and requirements relating to integrity monitoring and problem gambling.”
Arizona sports betting was legalized in 2021, but operators are required to apply to the ADG and pay $750,000 for a license. Thereafter, 10% of gross gaming revenue must be paid in taxes to the state. There are 20 available licenses, 10 to tribal sportsbooks and 10 to private companies, which leaves little room for Kalshi or others to enter the market.
Kalshi response
Kalshi reiterated the company’s mantra that the prediction markets are a matter for the CFTC to oversee, not state regulators. A company spokesperson told SBC Americas on Thursday, “Kalshi remains under the exclusive jurisdiction of the CFTC. We have the utmost respect for the regulatory process and look forward to resolving the matter.”
This is in line with Kalshi CEO Tarek Mansour’s previous comment that, “The CFTC is our regulator. If the CFTC tells us to stop, we will absolutely stop. If they don’t, then we won’t.”
The CFTC has so far been silent on the issue of sports prediction markets, but it plans to hold a call next week with tribal leaders to discuss the matter.
Kalshi board member Brian Quintenz was nominated to be the organization’s new chair by Donald Trump, whose son is also a strategic advisor to Kalshi. Quintenz is yet to take up the position and it is unlikely the CFTC will make any judgment against the expansion of prediction markets given Kalshi has embedded its interests in the organization.
Prveious leaders had challenged the company over its election markets, but that challenge was withdrawn recently, paving the way for further expansion.
To date, courts have also sided with Kalshi. The company responded to cease-and-desist notices in Nevada, New Jersy and Maryland with counter-suits and received preliminary injunctions in Nevada and New Jersey to continue operations.
It seems unlikely Arizona’s action will change anything, but it is another sign of the frustration of state regulators at the lack of intervention by courts or the CFTC to stop Kalshi from – in their view – violating state gambling laws.
Adam is an experienced writer with years of experience in the gambling industry. He has worked as a content writer and editor for five years on sites such as Oddschecker, CoinTelegraph and Gambling Industry News, bringing excellent knowledge of the world of sports betting and online gambling.
