A legal victory for state regulators has breathed new life into Arizona’s efforts to prosecute Kalshi, an online prediction market firm. The 9th U.S. Circuit Court of Appeals recently ruled that gambling on sporting events is not protected by federal laws that typically shield commodity swaps, effectively stripping away the primary defense Kalshi had been using to bypass local gambling statutes. This decision comes as a direct blow to a previous injunction issued by federal Judge Michael Liburdi, who had blocked Arizona Attorney General Kris Mayes from pursuing criminal charges against the company.

The heart of the dispute lies in how one defines an event versus an outcome. While Kalshi argued that its trades on sports results fell under the federal Commodity Exchange Act, the three-judge appellate panel disagreed. In a unanimous decision, the judges noted that while the occurrence of something like the Super Bowl might be an event, predicting who wins that game is simply a bet. They argued that interpreting these terms too broadly would essentially act as a wrecking ball to decades of state and tribal gambling regulations without clear authorization from Congress.

Arizona Attorney General Kris Mayes praised the ruling, stating that calling a sports bet a swap does not actually make it one. According to Mayes, the decision reaffirms the authority of states to maintain their own gaming systems and protects consumers from the risks associated with unregulated gambling. She emphasized that Kalshi’s legal strategy attempted to federalize sports betting across the country, which would have stripped states of their traditional police powers over such activities.

With this precedent now set in a companion case involving Nevada, Arizona is expected to move quickly to lift Judge Liburdi’s injunction. If successful, it will pave the way for a stalled twenty count criminal case against Kalshi to resume in court. However, because this ruling conflicts with a similar decision made by the 3rd U.S. Circuit Court of Appeals earlier this year, legal experts suggest the battle over prediction markets may eventually land before the U.S. Supreme Court for a final resolution.