The Arizona Department of Gaming (ADG) has ordered New York-based prediction market operator Kalshi to cease what it describes as illegal online gambling in the state, effective immediately. In a strongly worded cease-and-desist letter dated May 21, 2025, Douglas Jensen, the ADG’s Chief Law Enforcement Officer, accuses Kalshi of operating unlicensed “event wagering” in Arizona. According to the state, Kalshi’s contracts on sports and other future events cross into both civil and criminal violations under Arizona law.
“The Department requires that Kalshi cease gambling operations in Arizona and desist from engaging in those activities in the future,” the letter warns. “Failure to do so is further evidence of your ongoing knowing and willful violation of the law.”
Addressed to Kalshi CEO Tarek Mansour, the department says the company’s business model is essentially no different from illegal sports betting. The ADG claims: “Whether a contract will pay its buyer depends on whether that person correctly predicted the result of the event and bought a contract for the correct outcome. This amounts to Kalshi taking wagers,” the letter reads.
“Kalshi is not licensed and its operation of event wagering in Arizona is illegal.”
The ADG also takes issue with how Kalshi describes its contracts as an “innovation” under federal commodities law. It questions the legitimacy that Kalshi claims to have through the Commodity Futures Trading Commission (CFTC).
“There is no meaningful difference between buying one of your offered contracts and placing a bet with any other sportsbook,” it states.
According to NEXT.io, Arizona’s gaming regulator also sent similar letters to two other companies offering sports event contracts: Robinhood, which happens to be a Kalshi partner, and Crypto.com.
Kalshi may push back in Arizona
There’s no specific compliance deadline mentioned, but the letter calls for Kalshi to take “immediate steps” to shut down its operations. Kalshi may launch a countersuit, as it did in New Jersey and Nevada, where it has so far secured several injunctions allowing it to continue operating in those states.
A few points about Arizona's C&D letter to Kalshi:
1) No future deadline for compliance is specified; letter demands "immediate" compliance. Will likely prompt immediate lawsuit by Kalshi in Arizona federal court.
2) First real test over tension with IGRA; possible point of… pic.twitter.com/xlTkIZnaFC
— Daniel Wallach (@WALLACHLEGAL) May 23, 2025
Legal experts expect Kalshi to request emergency relief and push back against the state’s view that its contracts qualify as gambling, which could kick off a major legal showdown over whether federal or state authorities have the final say when it comes to regulating event-based financial markets.
The case could also become a key test of how Kalshi’s CFTC-regulated markets interact with federal Indian gaming laws, especially the Indian Gaming Regulatory Act (IGRA). Legal observers like Daniel Wallach believe the dispute could open the door for Arizona’s Native American tribes, who operate casinos under IGRA agreements, to get involved by filing amicus briefs. It would let them defend their exclusive rights to offer gambling in the state.
ReadWrite has reached out to Kalshi for comment.
Featured image: Kalshi / Canva
