Arizona Attorney General Kris Mayes is reviewing a federal appeals court ruling that strengthens states’ ability to regulate sports-related prediction market contracts, although the decision does not resolve Arizona’s separate dispute with Kalshi over election wagering.
The U.S. Ninth Circuit Court of Appeals ruled Friday in a Nevada case that the federal Commodity Exchange Act does not prevent states from applying their gambling laws to Kalshi’s online sports-event contracts. The appellate court upheld a lower court decision allowing Nevada to enforce its sports betting laws against the prediction market operator.
Kalshi had argued that trades placed on sporting events were swaps, a type of derivative regulated by the federal Commodity Futures Trading Commission (CFTC), and therefore fell under federal law. The Ninth Circuit disagreed with that position.
The decision has implications because Arizona is within the Ninth Circuit and Mayes has been seeking to assert state authority over prediction markets, including Kalshi and Polymarket, while facing opposition from the federal government and court decisions favoring federal oversight.
Mayes described the ruling as supporting states’ authority over gambling regulation.
“Kalshi’s position would have effectively federalized sports betting regulation nationwide and swept aside decades of state and tribal oversight built to protect consumers from the real harms of unregulated gambling,” she said in a press statement.
The ruling, however, does not settle the question of whether states can regulate Kalshi’s election-related contracts. The Ninth Circuit sent the question of Nevada’s authority over election wagering back to the district court for further consideration.
Mayes filed criminal charges against Kalshi in March, accusing the New York-based company of operating an illegal gambling business and violating state laws prohibiting election wagering. 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 differed from sportsbooks and casinos and “should not be overseen by a patchwork of inconsistent state laws.”
Arizona’s prosecution 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 preempted Arizona gambling statutes in the case. The ruling prevented Mayes and the Arizona Department of Gaming from continuing enforcement of the criminal charges.
The dispute has also drawn 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.