A federal judge in Arizona has granted the Commodity Futures Trading Commission’s request for a preliminary injunction, stopping state officials from enforcing gambling laws against event contracts listed on CFTC-regulated markets while the case continues.
U.S. District Judge Michael T. Liburdi granted the CFTC’s motion on May 5 and dissolved an earlier temporary restraining order. The order keeps Arizona from using its gambling and election-wagering laws against Kalshi’s federally regulated exchange during the next stage of the case.
The court sided with federal preemption
The dispute centers on whether Arizona can treat Kalshi’s event contracts as illegal gambling when the company operates as a CFTC-registered designated contract market. Arizona regulators had sent Kalshi a cease-and-desist letter and warned of criminal or civil action over what they described as unlicensed event wagering.
Liburdi wrote that federal law preempts state gambling laws when those laws seek to regulate derivatives traded on markets overseen by the CFTC. The court found that the federal plaintiffs were likely to succeed on their claim that the Commodity Exchange Act gives the CFTC exclusive authority over swaps traded on designated contract markets.
The decision does not end the case. A preliminary injunction preserves the position of the parties while the court considers the underlying claims. It still gives the CFTC and Kalshi an important win in Arizona after the same judge had earlier denied Kalshi’s own request for early relief.
Arizona case became a test of state gambling powers
Arizona was the first state to file criminal charges against Kalshi. Prosecutors accused the company of running an illegal gambling operation and accepting wagers tied to political outcomes, college sports and individual player performance.
The CFTC later stepped in and sued Arizona, arguing that the state was intruding on federal authority over national derivatives markets. The agency also filed similar actions against Connecticut and Illinois, saying state efforts to police CFTC-regulated prediction markets are preempted by federal law.
The case fits into a wider fight over whether sports and election event contracts should be treated as financial derivatives or gambling products. Courts have not reached one settled answer, with rulings in different states moving in different directions.
The ruling adds pressure to the wider prediction market fight
The Arizona order gives the CFTC more support as it argues for one federal system around event contracts. It also lets Kalshi keep operating in Arizona under federal oversight while the state’s enforcement effort remains paused.
The next pressure point may come from appeals courts. Liburdi noted that the Third Circuit has already backed Kalshi on a related preemption issue, while the Ninth Circuit is weighing another case involving Nevada. A split between courts could push the prediction market fight closer to a higher court.
