Arizona hits Kalshi with criminal charges, escalating fight between states, markets
Arizona on Tuesday became the first state to file a lawsuit against Kalshi, accusing the prediction market company of operating an illegal gaming business within its borders, a significant escalation in the fight to regulate the popular platform.
The 20-count charging document accuses Kalshi of accepting bets on political outcomes, college athletic competitions and individual player performances, in violation of Arizona’s gambling laws. The state prohibits operating an unlicensed betting business and prohibits betting on elections.
“Arizona will not be bullied into allowing one company to place itself above state law,” Democratic Attorney General Kris Mayes said.
This criminal case marks a new front in a high-stakes legal battle over whether prediction markets should be subject to the same rules as gambling companies.
President Donald Trump’s administration has thrown its support behind the multibillion-dollar forecasting market industry, further amplifying the state-federal fight for regulatory control. The outcome could have far-reaching implications for how sports betting – which accounts for around 90% of Kalshi’s trading volume – is regulated in the United States.
Kalshi insists it is a financial market rather than a gaming operation and should only have to answer to federal regulators at the Commodity Futures Trading Commission. The Trump-led agency acknowledges that it exercises exclusive oversight.
Trump’s eldest son, Donald Trump Jr., serves as Kalshi’s strategic advisor. And the Republican president’s social media platform, Truth Social, is launching its own cryptocurrency-based prediction marketplace called Truth Predict.
Elisabeth Diana, a spokeswoman for Kalshi, dismissed the accusations against Arizona as “baseless” and accused the state of trying to circumvent federal court.
Kalshi sued Arizona, Utah and Iowa to try to stop the state’s planned action against the platform.
But U.S. District Judge Michael Liburdi in Arizona, a Trump appointee, on Tuesday denied Kalshi’s request for a temporary block and ordered the company to demonstrate why the case should be brought to federal court given the state’s new charges.
At least nine other states have filed a lawsuit against Kalshi, and Utah’s Republican governor has pledged to sign a bill that could harm the company’s business in the state.
So far, the results have been mixed. Federal and state judges in Nevada and Massachusetts, respectively, issued advance rulings in favor of states seeking to ban Kalshi and its competitor Polymarket from offering sports betting in their states, while federal judges in New Jersey and Tennessee ruled in favor of Kalshi.
CFTC Chairman Michael Selig said the legal battle between Arizona and Kalshi is a question of jurisdiction and is “wholly inappropriate as a criminal prosecution.”
The state claims Kalshi is a gambling business that presents itself as a marketplace. But the company says its product is different because customers make “trades” with each other instead of betting against the “house.”
Kalshi works by allowing clients to buy and sell “Yes” or “No” contracts linked to the likely outcome of an event. Anyone with a smartphone can bet on everything from snow in Miami to whether Trump will say a certain buzzword in a speech. Contracts typically cost between 1 cent and 99 cents, which roughly corresponds to the percentage of customers who believe this event will occur.
The charges in Arizona were filed just days before the start of the men’s and women’s NCAA basketball tournaments, one of the busiest times of the year for prediction markets and sports betting.
Kalshi announced a billion-dollar perfect bracket challenge Monday without mentioning the NCAA or March Madness, both trademarks of the NCAA. The NCAA has expressed concerns about sporting event contracts in betting markets and their possible effects on its competitions.
