Arizona Warns Licensed Betting Operators Not to Enter Prediction Markets Space
The Arizona Department of Gaming (ADG) has issued a formal warning to licensed sports betting and fantasy sports operators regarding their potential involvement in prediction markets. That involvement could cost them their license.
LISTEN TO THIS ARTICLE:In a letter sent to operators earlier this week, the regulator stated that entering such markets outside of Arizona could place an operator's license at risk within the state. The message underscores Arizona's position as one of the largest regulated sports betting markets in the country and signals heightened scrutiny of activities tied to event contract trading.
Related: Maryland Becomes Fifth State to Order Halt of Sports Prediction MarketsThe letter, addressed by ADG Director Jackie Johnson, outlined that if the department determines a licensed entity, or an entity affiliated with a licensee, has partnered with a company selling event contracts in violation of laws elsewhere in the US, this could influence licensing decisions in Arizona. The department emphasized that its oversight extends beyond state borders and could include the actions of affiliates, partners, and related entities.
The warning builds on recent enforcement activity. In May, Arizona regulators sent cease-and-desist notices to Kalshi, Robinhood, and Crypto.com for allegedly offering sports betting without authorization in the state. Six other states have also taken similar measures against unlicensed operators. Despite these actions, no litigation in state or federal court has yet emerged in Arizona regarding sports event trading.
Prediction markets, sometimes framed as event contracts, allow participants to buy and sell positions tied to the outcome of future events. These products resemble betting exchanges in their function.
Underdog, a fantasy sports operator registered in Arizona, recently launched such products in 16 states through a partnership with Crypto.com, but Arizona was not among the jurisdictions where they went live. FanDuel has also signaled interest in entering prediction markets, though its plans involve collaboration with CME Group for financial events rather than sports.
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The ADG's latest correspondence also referenced prior inquiries made in June, when regulators asked wagering operators for information related to Designated Contract Markets (DCMs) and the sale of contracts on sporting outcomes. Kalshi is a DCM regulated under the Commodity Futures Trading Commission, and its structure allows it to offer sports event contracts and work with intermediaries such as Robinhood to distribute those products.
The letter clarified that offering or selling event contracts to individuals located in Arizona without a state license violates Arizona law. The ADG stated that if an operator were to facilitate or partner in offering event contracts, whether directly or through related entities, the department would review that conduct when assessing the suitability of the operator to retain its license.
Furthermore, the department noted that even if such activities occur outside Arizona, relationships with entities operating prediction markets in violation of other jurisdictions' laws could still affect regulatory determinations within the state.
Arizona's stance differs from that of Ohio, which issued a similar communication to operators in August. The ADG went further by stressing that licensees considering acquisition of a DCM, becoming a DCM or a futures commission merchant, or associating with such entities, risk regulatory consequences that extend beyond Arizona's borders. The department made clear that its evaluation process considers both direct and indirect associations.
The broader regulatory environment reflects the growing tension between state gambling authorities and the emergence of federally overseen prediction markets. Entities like Kalshi are able to offer contracts nationwide, including in major markets such as California and Texas, where legal sports betting remains unavailable.
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