On the heels of issuing a cease-and-desist order to Kalshi on May 21, Arizona’s gaming regulator on Monday filed a letter with the Commodity Futures Trading Commission (CFTC) outlining its objections to Kalshi and fellow Designated Contracts Markets’ (DCM) allowance of sports-related event contracts in the state.
The letter from the Arizona Department of Gaming (ADG) Director Jackie Johnson is addressed to CFTC Acting Chairman Caroline Pham, who announced her intention to exit the agency following the confirmation of Brian Quintenz as chairman. Quintenz, a former commissioner with the agency from 2017 to 2021, was appointed by President Trump to lead the agency and awaits a confirmation hearing.
The ADG’s written opposition to “the activities being conducted” in Arizona joins the list of letters from other state agencies, tribal groups, and a variety of individuals who largely have voiced opposition and concern over activity taking place on prediction market platforms Kalshi, Crypto.com, and Kalshi partner Robinhood.
“The DCMs claim that their operations enable ‘trading’ of financial derivatives, which is conduct regulated by the CFTC,” wrote Johnson. “In truth, there is no meaningful difference between buying one of the contracts offered by the DCMs and placing a bet with any other sportsbook. And, whatever regulation the CFTC undertakes, it does not reflect the desires of the citizens of Arizona.”
“Congress has long recognized that the individual states must be able to decide what approach to gambling best suits their citizens,” wrote Johnson. “Federal legislation relating to gambling is geared towards supporting state law gambling restrictions. The State does not accept the idea that for years states have blindly passed legislation and regulated event wagering without knowing that Congress secretly upended its historical approach to gambling in the Commodities Exchange Act, a fact only just now revealed by the DCMs.”
In response to the cease-and-desist, a Kalshi spokesperson said at the time: “Kalshi remains under the exclusive jurisdiction of the CFTC. We have the utmost respect for the regulatory process and look forward to resolving the matter.” Kalshi has won legal injunctions from federal judges in Nevada and New Jersey allowing it to continue to operate while the matters proceed.
And then there was one
The practical impact of submitting the letter is unclear. The online repository where the letter is contained refers to a “prediction markets roundtable” that was tentatively scheduled for April 30 and abruptly cancelled one week prior. There are no indications that the CFTC will reschedule it.
InGame exclusively reported on May 21 that Acting Chairman Pham was set to meet on May 29 with select tribal groups to discuss sports event contacts, the agency’s oversight of them, and what the future may hold.
“What I took from that whole session is that [Pham] ain’t doing anything and doesn’t know if the incoming director is going to do anything,” said one source after the session. “It was interesting to hear how in tune she was about not doing anything. It was basically like she was showing us all the ways they can’t do anything.”
Pham is on the way out of the agency after three other commissioners also recently announced their departures. Kristin Johnson recently stated her intention to step down, following exits by Summer Mersinger, who will lead the Blockchain Association, and Christy Goldsmith Romero, who left the commission at the end of May and will retire from federal service.
Jackie Johnson’s letter on behalf of the ADG underscored the way that prediction market platforms have impacted and threaten to undermine tribal-state compacts around gaming, as well as the Indian Gaming Regulatory Act of 1988 in general.
“These compacts follow over 30 years of cooperation between the State and Tribes to balance their respective interests and carefully regulate and share in the benefits of legal gambling,” Johnson wrote. “Yet now the DCMs have come into Arizona and upset these carefully constructed agreements, despite the extensive requirements surrounding gambling on Indian lands, the most relevant of which is that the gambling must be operated by Tribal nations themselves.”
“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.”
Whether the CFTC can function and meet its statutory mandate, let alone effectively oversee DCMs facilitating multi-million dollar trades on sports with a single commissioner at the helm, will be open questions — and perhaps another branch for the litigation between Kalshi and state regulators in Nevada, New Jersey, Maryland and possibly Arizona as well.
