Arizona’s criminal charges against Kalshi do not constitute “imminent harm” against the business, the state’s lawyers argue in a new legal brief, because it can avoid any harm by simply ceasing to offer sports and election contracts.
The brief was filed Wednesday in Kalshi’s federal lawsuit against Arizona in the U.S. District Court for the District of Arizona.
gov.uscourts.azd_.1483385.18.0Kalshi is fighting for a preliminary injunction to block the state-level criminal charges that Arizona Attorney General Kris Mayes filed against the business on March 17. Kalshi argues that it is immune from state gambling laws, such as the Arizona laws that it is alleged to have violated, because it is under the “exclusive jurisdiction” of the federal Commodity Futures Trading Commission (CFTC).
In its appeal for an injunction, Kalshi argued that the criminal charges are an imminent threat to its business.
However, Arizona’s brief argues that this is not a true threat because the prediction market could simply stop offering the sports and election contracts that led to the criminal charges.
“Kalshi primarily worries about harm to its business as a result of criminal prosecution,” Arizona’s lawyers wrote. “But such harm to its business relationship is not both certain and imminent. As Kalshi admits, its alleged harm rests on ‘if’ it chooses not to comply with Arizona law. Whether any harm comes to Kalshi depends on its own conduct and the decisions of its business partners.”
‘Elephants in mouseholes’
The state’s brief also questioned the idea that the 2010 Dodd-Frank Act allowed for sports betting to be legalized nationwide, eight years before the repeal of PASPA.
“Kalshi would have this Court believe that, in a bill regulating financial markets (the Dodd-Frank Wall Street Reform and Consumer Protection Act) in 2010, Congress silently gave the Commodity Futures Trading Commission (CFTC) exclusive and preemptive authority to regulate sports gambling — and no one realized it until 2025,” it said. “Even more outlandish, Kalshi must contend that when the Supreme Court invalidated a prior federal statute that expressly prohibited almost all sports gambling in 2018, the Supreme Court totally failed to realize that Congress had already given the CFTC exclusive authority over sports gambling through Dodd-Frank.
“But Congress does not hide elephants in mouseholes, and the Supreme Court is not composed of fools. Nor does the text of the Dodd-Frank amendments hold that sports bets are swaps that states may not regulate.”
It added that, “Before Murphy, Congress would not have even thought about overriding state laws that regulate sports betting, because at those times it was already largely illegal federally to engage in sports gambling.”
Arizona says sports contracts aren’t swaps
Arizona’s lawyers also repeated arguments that other states have made — mostly, but not always, successfully — about whether sports event contracts can be classed as “swaps” — a type of financial instrument traditionally used for hedging risk — and whether the Commodity Exchange Act (CEA) preempts state gambling laws.
According to the CEA, a swap includes “any agreement, contract, or transaction … that is dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence.”
Citing past court rulings in Nevada and Ohio, the brief said that a swap’s financial, economic, or commercial consequences must be “inherent” and that it can only cover whether an event actually happens, not details of how an event happens such as who wins a football game.
“Swaps are hedging tools,” Arizona’s lawyers said. “There is no genuine basis to hedge against happenings that have no inherent financial, economic, or commercial significance, such as the number of three-point shots made or what announcers say during a basketball game.
“Indeed, Kalshi bans the very people who could arguably use a sports-related event contract to hedge against risk: athletes and other ‘individuals involved in college and professional sports.’”
On preemption, the brief said that the CEA preempts state laws that are explicitly about commodity futures, but not state gambling laws, as there is a long history of gambling being regulated by the states.
“Kalshi’s burden is to establish that Congress clearly and manifestly intended to strip states of their authority to regulate gambling simply because it is facilitating those wagers on a DCM. It cannot carry that heavy burden,” it said. “Gambling regulation is among the most historically entrenched exercises of state police power in American law.”
NJ says Nevada shutdown ‘undermines’ Kalshi arguments
Meanwhile in the U.S. Court of Appeals for the Third Circuit, where New Jersey is appealing a decision to grant Kalshi an injunction, the state flagged Nevada’s recent decision to shut down Kalshi’s sports markets to the court.
New Jersey’s lawyers argue that the move “undermines any claim that it is impossible for Kalshi to comply with state gambling regulations.”
