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Kalshi has filed a federal lawsuit against the Arizona Department of Gaming as tension grows between prediction markets and state sports betting regulators across the United States.
The exchange argues that federal oversight allows trading of event contracts nationwide, while several states say those contracts fall under their sports betting laws.
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Court filings show Kalshi expects enforcement pressure from Arizona officials. The lawsuit states that “there is a substantial risk that the Attorney General of Arizona will bring an enforcement action against Kalshi on behalf of the Arizona Department of Gaming with the intent to prevent Kalshi from offering event contracts for trading on its federally regulated exchange.”
Kalshi already faces legal disputes with roughly a dozen states that want to block sports event contracts offered to local residents. Arizona and Iowa stand among the latest examples.
State regulators argue that contracts tied to game results operate like sports betting. Since Kalshi does not hold sports betting licenses in Arizona or Iowa, regulators believe those markets violate state gambling laws.
Kalshi takes the opposite view. The exchange operates under regulation from the Commodity Futures Trading Commission and says derivatives law governs trading on its platform.
A similar argument appeared in the Iowa lawsuit. Kalshi wrote in court filings:
“This action challenges the State of Iowa’s intrusion into the federal government’s exclusive authority to regulate derivatives trading on exchanges overseen by the Commodity Futures Trading Commission (“CFTC”). 7 U.S.C. § 2(a)(1)(A). On information and belief, there is a substantial risk that the Attorney General of Iowa (the “Iowa AG”) will bring an enforcement action against Plaintiff KalshiEX LLC (“Kalshi” or “Plaintiff”) on behalf of the Iowa Racing & Gaming Commission (“IRGC” or the “Commission”) with the intent to prevent Kalshi from offering event contracts for trading on its federally regulated exchange.”
Kalshi said representatives attended a meeting with Iowa Attorney General Brenna Bird expecting a discussion about tax legislation. According to the company, attorneys instead questioned the legal basis behind prediction market contracts offered in the state.
Meanwhile, lawmakers in Iowa continue to examine legislation that would require prediction markets to obtain a license from the Iowa Department of Revenue. The proposal sets the cost at $10 million.
Kalshi operates a federally regulated prediction market exchange where users trade contracts tied to future events such as elections, economic data, or sports results.
Kalshi filed the lawsuit after concluding Arizona regulators may try to block event contracts offered on the exchange.
State regulators say contracts tied to game outcomes function like sports betting and require local licenses.
Iowa regulators also challenge Kalshi operations, while lawmakers review a bill that would require prediction markets to pay $10 million for a state license.