Arizona on Tuesday became the first state to file criminal charges against Kalshi, accusing the prediction market company of operating an illegal gambling 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 sporting competitions and individual player performance in violation of Arizona’s gambling laws. The state prohibits operating an unlicensed wagering business and bans betting on elections.
“Arizona will not be bullied into letting any company place itself above state law,” said Democratic Attorney General Kris Mayes.
The 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 prediction market industry, further amplifying a state-versus-federal fight for regulatory control. The outcome could have sweeping implications for how sports betting — which makes up roughly 90% of Kalshi’s trading volume — is regulated in the U.S.
Kalshi insists it’s a financial marketplace rather than a gambling operation and should only have to answer to federal regulators with the Commodity Futures Trading Commission. The agency under Trump agrees it has exclusive oversight.
Trump’s eldest son, Donald Trump Jr., is a strategic adviser for Kalshi. And the Republican president’s social media platform, Truth Social, is launching its own cryptocurrency-based prediction market called Truth Predict.
Elisabeth Diana, a spokesperson for Kalshi, dismissed the Arizona charges as “meritless” and accused the state of trying to circumvent federal court.
Kalshi sued Arizona, Utah and Iowa in attempts to stop anticipated state action against the platform.
But U.S. District Judge Michael Liburdi in Arizona, a Trump appointee, denied Kalshi’s request for a temporary block Tuesday and ordered the company to demonstrate why the case should be in federal court given the new state charges.
At least nine other states have taken some form of legal action against Kalshi, and Utah’s Republican governor has pledged to sign a bill that could undercut the company’s business in the state.
So far, the outcomes have been mixed. Federal and state judges in Nevada and Massachusetts, respectively, issued early rulings in favor of states looking to ban Kalshi and its competitor Polymarket from offering sports betting in their states, while federal judges in New Jersey and Tennessee have ruled in favor of Kalshi. The Nevada lawsuit was remanded to state court.
CFTC chairman Michael Selig said the legal fight between Arizona and Kalshi is a jurisdictional issue and is “entirely inappropriate as a criminal prosecution.”
The state argues Kalshi is a gambling operation that brands itself as a marketplace. But the company says its product is different because customers engage in “swaps” between one another instead of betting against the “house.”
Kalshi operates by allowing customers to buy and sell “Yes” or “No” contracts tied to the probable outcome of an event. Anyone with a smartphone can wager on everything from whether it will snow in Miami to whether Trump will say a certain buzzword in a speech. Contracts are typically priced between 1 cent and 99 cents, which roughly translates to the percentage of customers who believe that event will happen.
The charges in Arizona were filed just days before the start of the NCAA men’s and women’s basketball tournaments, one of the busiest periods of the year for prediction markets and sportsbooks.
Kalshi announced a $1 billion perfect bracket challenge on Monday without mentioning the NCAA or March Madness, a pair of NCAA trademarks.
An NCAA spokesperson, Saquandra Heath, said Tuesday the organization remains concerned about “unprotected prediction markets that pose a threat to competition integrity and student-athlete safety.”
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Associated Press sports writer Jay Cohen in Chicago contributed to this report.
