Sportsbooks Face License Suspension in Arizona if They Pursue Prediction Markets

Arizona gaming regulators have made it very clear that sportsbook operators are either with them or against them when they issued a stern warning that licenses could be at risk for any sportsbook that seeks to do business as a prediction market contract futures exchange.

Walking a Tightrope

Mobile sportsbooks have been treading cautiously regarding gaining access to the sports prediction market. On the one hand, the operators understand that the state gaming regulators they are beholden to are understandably frustrated that their laws are not being respected by futures trading exchanges like Kalshi, which has operated unfettered throughout the US, citing that they are regulated by the Commodity Futures Trading Commission (CFTC), a federal governmental body whose rule supersedes any state law.

However, on the flip side of that equation, Kalshi has won several legal victories, and not only do they operate in states with sports betting industries, but also in those that do not, namely Texas and California, the two biggest states in the nation that have yet to legalize mobile sports betting.

The sportsbooks would like to be able to operate in that sports event contract market by either creating a subsidiary that will be licensed under the CFTC or purchasing a company that already has a license and would be ready to hit the ground running. DraftKings applied for a futures license with the CFTC before pulling its application in April, perhaps thinking better of potentially invoking the ire of state regulators.

The Shoe Drops

Arizona just put to rest any speculation mobile sportsbooks may have had about causing friction with state regulators. The Arizona Department of Gaming said the quiet part out loud. According to a letter the regulators sent to its licensed sportsbooks, it warned that those “in violation of the laws of [another] jurisdiction … might (depending on circumstances) impact a licensing decision.”

That left little to the imagination and stated plainly where the regulators stand when it comes to prediction markets. The letter reflects the same warning that the Ohio Casino Control Commission sent to its sportsbooks.

Cease-and-Desist Orders Across Multiple States

Kalshi, Robinhood, and Crypto.com have been issued cease-and-desist orders from gaming regulatory agencies in Arizona, Illinois, Maryland, Montana, Nevada, New Jersey, Ohio, and Tennessee, while the Massachusetts attorney general recently sued Kalshi.

The Arizona Department of Gaming stated in its letter, “We have also learned that several licensees, including Fantasy Sports Contest Operators, are planning to enter the prediction marketplace by acquiring an existing DCM, becoming a DCM or a Futures Commission Merchant (‘FCM’), or associating or partnering with a DCM or FCM directly or indirectly, to offer, enable, or sell event contracts outside the framework of state gambling laws.”

“In addition, even if the licensee is not associated directly with the offering or sale of event contracts to persons in Arizona, its relationship with other persons or entities and conduct in other jurisdictions remains at issue. By way of example only, in determining suitability, the Department will consider any relationship between the licensee (to include its owners, related entities, principals, agents, or employees) and a person or entity offering, enabling, or selling event contracts in Arizona.”