Kalshi
- Arizona permits sports betting but not election wagering
- Prediction markets are regulated as securities
- Other states have launched civil cases against prediction markets
The state of Arizona has filed misdemeanor charges against prediction market operator Kalshi, accusing it of running an illegal sports and election betting operation.
Prediction markets see customers exchange contracts tied to the result of a particular event, with their value appreciating or depreciating accordingly.
These markets operate under federal commodities and derivatives regulation, which is overseen by the Commodity Futures Trading Commission (CFTC), rather than traditional state gambling laws. This means the service can be offered in US states where betting is not legal.
Arizona Attorney General Kris Mayes believes Kalshi’s service is tantamount to sports betting and that the company should be regulated as such.
Betting legislation in the US is determined by individual states. Sports betting is legal in Arizona, however operators must be licensed. Additionally, wagering on elections is explicitly prohibited.
In total, Kalshi has been charged with 20 counts of accepting bets in Arizona without a licence.
“Arizona will not be bullied into letting any company place itself above state law,” said Mayes.
This marks the first time that criminal charges have been brought against a predictions market operator. However, some states have filed civil lawsuits against prediction markets in a bid to force them to file for betting licences that would impose more stringent restrictions and reduce the risk of market manipulation.
Kalshi stresses that it is compliant with every obligation demanded by the CFTC and believes individual states are seeking to exert powers they do not possess. It pre-emptively filed for a preliminary injunction against Arizona last week but this was denied.
SportsPro says…
Prediction markets have surged in popularity over the past 12 months, contributing to the dramatic increase in value of major exchanges like Kalshi and Polymarket. Meanwhile more established betting firms like FanDuel and DraftKings diversifying their offering to take advantage of this activity.
However, the fact these markets are regulated at a federal level as commodities rather than by state gambling laws is causing significant tension. There have been accusations of manipulation, with the use of inside information allegedly used to gain an advantage, something that would be punished severely under comparable betting legislation.
The decision by Arizona to press charges, and the civil cases brought by other states, are the latest evidence yet of the meteoric growth of prediction markets could yet be tempered.
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