Arizona’s gaming regulator on Monday penned a letter asking the Commodity Futures Trading Commission (CFTC) to shut down sports event contracts from platforms such as Kalshi.
Sports prediction markets allow users to purchase contracts associated with outcomes instead of using licensed sports betting outlets.
Key Takeaways
- The Arizona Department of Gaming director said sports event contracts are a form of illegal gambling
- The CFTC canceled a recent roundtable to discuss concerns about sports contracts
- At least seven states have raised concerns with prediction platforms
Even though Arizona is one of 38 states that legalized sports betting, customers can be enticed to purchase sports event contracts instead of placing bets at licensed sportsbooks if they are offered better odds or innovative markets.
“As you are aware, the DCMs (Designated Contract Markets) are enabling the purchase of ‘contracts’ in Arizona on future events including sports,” Arizona Department of Gaming director Jackie Johnson wrote in the letter. “Whether a contract will pay its buyer depends on whether that person correctly predicts the result of the event and buys a contract for the correct outcome.
“This conduct amounts to illegal gambling in Arizona, which is a felony.”
Kalshi, crypto.com, Robinhood, and other prediction platforms argued they didn't have to comply with state regulators since they were federally regulated entities. These platforms also abided by the CFTC’s, which did not forbid the offering of sports contracts.
State governments, many of which legalized sports betting primarily for the tax funding their market would generate, argue that the allowance of sports contracts completely circumvents the licensing and regulatory processes that are central to every state’s sports betting market.
Not what it was meant to be
According to Johnson, Arizona’s 2020 Gaming Act was only passed after intense consultation with the public, industry experts, and the Grand Canyon State’s tribes. The market was never intended to support external entities such as prediction platforms.
“The Act is thus a reflection of the fact that the people of the state wanted only certain entities to operate event wagering, to eliminate illegal sports betting in the state, to carefully limit and regulate event wagering in a manner reflecting Arizona values, and to use it to raise money for all Arizonans,” said Johnson.
Johnson also took issues with the CFTC itself, claiming that it cowered to Kalshi and was not proactive enough in dealing with a growing issue.
The letter highlighted the commission’s allowance of sports contracts without a regulatory review and the cancellation of its recent roundtable to discuss concerns presented by numerous states, including Tennessee, Maryland, and at least five others, and entities, such as the NBA.
“The CFTC allowed their sports outcome contracts to take effect without review or comment. Since then, the CFTC, at the last minute, canceled a scheduled roundtable to discuss State and Tribal concerns,” wrote Johnson. “And, most recently, the CFTC dropped its appeal against Kalshi in the U.S. Court of Appeals for the D.C. Circuit.
“The CFTC’s inaction in enforcing its own rules… has prioritized the private business concerns of a handful of [Designated Contract Markets] over the public’s interests. The State respectfully requests that the CFTC reconsider its actions and inaction in light of the State’s concerns and conclude that the DCMs’ offering of event contracts is gambling, is contrary to the public interest, and should be prohibited.
The letter was written two weeks after Arizona’s regulator sent cease-and-desist orders to Kalshi, Robinhood, and crypto.com.
