Kalshi Files Lawsuit Against Arizona as Prediction Market Legal Battle Expands
Photo by Nils Huenerfuerst on Unsplash
Prediction market provider Kalshi filed a federal lawsuit against Arizona as it continues to try to preempt state regulators.
The complaint, filed in the U.S. District Court for the District of Arizona, argues that Kalshi’s platform falls under federal oversight, preempting Arizona’s attempt to regulate the company’s event contracts.
The lawsuit was filed just one day after Kalshi filed a similar preemptive complaint against Iowa regulators. In February, the operator also sued Utah officials.
Lawsuit Claims Federal Law Preempts Arizona Regulation
In its complaint, Kalshi argues that its platform operates as a federally regulated derivatives exchange under the oversight of the Commodity Futures Trading Commission (CFTC).
It argues the agency has the “exclusive jurisdiction” over event contracts listed on designated contract markets. Kalshi says the CFTC agrees that it’s the sole regulator of prediction markets, a stance the agency recently reiterated.
According to the filing, it challenges Arizona’s “intrusion” into the federal government’s exclusive authority to regulate derivatives trading. The complaint alleges that Arizona regulators improperly attempted to treat Kalshi’s contracts as illegal gambling.
“Congress vested the CFTC with exclusive jurisdiction to protect that national interest by overseeing the regulation of futures, options, and swaps traded on federally regulated exchanges,” the complaint states.
The lawsuit cites Arizona’s cease-and-desist letter to Kalshi, issued in May 2025. In the letter, the state warned Kalshi that failure to cease offering event contracts would result in civil or criminal penalties.
Kalshi argues that any enforcement by the state will directly conflict with federal law and the regulatory framework governing derivatives markets.
Kalshi says these actions demonstrate a credible threat that Arizona “will imminently bring an enforcement action” against the company, justifying its request for declaratory and injunctive relief.
Third Preemptive Lawsuit Against State Regulators
Arizona marks Kalshi’s third lawsuit against a state regulator, citing a credible threat of enforcement actions aimed at preventing enforcement actions against its event contracts. The difference is that while Arizona regulators have sent a cease-and-desist letter, the other two have not publicly pursued enforcement.
On the day before the Arizona lawsuit, Kalshi filed a preemptive lawsuit against Iowa officials.
According to the complaint, after a meeting with the Iowa Attorney General’s office, the company believed that there was a “substantial risk” that Attorney General Brenna Bird or the Iowa Racing & Gaming Commission would bring enforcement action against it.
Kalshi argued that what was supposed to be an introductory discussion of prediction markets turned into a legal interrogation over whether Kalshi was breaking Iowa law.
In February, Kalshi also filed a lawsuit against Utah Gov. Spencer Cox and Attorney General Derek Brown.
It argued that public comments by the officials create an imminent risk of prosecution under the state’s anti-gambling laws.
Across the three lawsuits, Kalshi has used the same strategy and near-identical language. It argues that the CFTC oversees its platform at the federal level, which preempts state gaming statutes. It also argues that sports event contracts fall under the definition of “swaps” under the Commodity Exchange Act (CEA).
Judge Assignment Draws Attention
Kalshi may have benefited from an unusual sequence of judicial recusals in the Arizona case.
Gaming attorney Daniel Wallach noted that two judges initially assigned to the case recused themselves. One is a member of the Church of Jesus Christ of Latter-day Saints. Meanwhile, the other is a President Bill Clinton appointee.
After the recusals, the case was assigned to U.S. District Judge Michael T. Liburdi.
Notably, Liburdi, a Trump appointee, previously worked as a partner at Snell & Wilmer, the law firm representing Kalshi in the case. Wallach also noted that Liburdi has been a member of The Federalist Society since 2005.
The Federalist Society is a conservative and libertarian legal organization that promotes textualist and originalist approaches to constitutional interpretation.
Wallach suggested that Arizona regulators may wait for the Ninth Circuit Court of Appeals to establish a circuit-wide precedent on prediction markets before pursuing enforcement action.
A decision by the Ninth Circuit in the case of Kalshi against Nevada could come at any time.
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