Federal Judge Grants CFTC Preliminary Injunction Against Arizona in Kalshi Case

A federal judge in Arizona has granted the Commodity Futures Trading Commission (CFTC) a preliminary injunction against Arizona officials. The ruling concludes that federal law likely preempts the state’s attempts to enforce its gambling laws against Kalshi’s sports event contracts.

In a 17-page order issued Tuesday, U.S. District Judge Michael Liburdi determined that the Commodity Exchange Act (CEA) likely gives the CFTC exclusive jurisdiction over event contracts traded on federally regulated designated contract markets (DCMs), including those offered by Kalshi. The decision extends an earlier temporary restraining order from April. It blocks Arizona from enforcing its gambling laws or pursuing criminal or civil actions against Kalshi and other CFTC-regulated exchanges while litigation continues.

This ruling represents a structural shift in the ongoing tension between federal derivatives oversight and state gambling enforcement. It underscores Congress’s intent to maintain a unified national framework for these markets.

Judge Determines Event Contracts Qualify as Swaps Under the CEA

A central issue was whether Kalshi’s sports-event contracts qualify as “swaps” under the CEA. Arizona argued that sports outcomes are not “events” under the statute. The state attempted to distinguish between the sporting event itself and its outcome.

Judge Liburdi rejected that distinction. He wrote: “The statutory definition of swap therefore reaches how an event unfolds, not just whether it happens.”

The judge found that Congress drafted the swap definition broadly. That includes contracts tied to “the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence.”

Liburdi also dismissed Arizona’s claim that sports outcomes lack sufficient economic significance. He observed: “Temperature and precipitation have no intrinsic financial value. Yet the CFTC and the Securities Exchange Commission have consistently treated weather derivatives as swaps.”

He concluded that sports and election event contracts operate similarly. Stakeholders can hedge financial exposure tied to outcomes.

“Event contracts based on sports and election outcomes work the same way.”

Court Finds Federal Law Likely Preempts State Gambling Enforcement

After classifying the contracts as swaps, the court addressed preemption. Judge Liburdi concluded that both field preemption and conflict preemption likely apply.

On field preemption, the court found Congress created a comprehensive federal regulatory structure. This leaves states without authority over swaps traded on federally regulated exchanges.

“The CEA occupies the field of swaps and futures traded on DCMs.”

The ruling relied heavily on Congress granting the CFTC “exclusive jurisdiction” over swaps markets. “The CFTC’s exclusive jurisdiction therefore preempts state law to the extent that state law purports to regulate contracts that fall within § 2(a).”

Judge Liburdi addressed the CFTC’s “Special Rule” for event contracts tied to gaming activities. Arizona claimed the rule supported state authority. The judge disagreed: “By directing the CFTC to review event contracts and prohibit those contrary to the public interest, Congress placed event contracts under the CFTC’s exclusive authority.”

On conflict preemption, the court found Arizona’s actions would interfere with Congress’s objectives. “The State’s enforcement of its gambling laws would also frustrate Congress’s objectives in creating a unified regulatory regime that oversees DCMs and ensuring that DCMs operate as national markets.”

Allowing state prosecution would create a fragmented system. “If states could prosecute DCM operators for offering event contracts, the operators would face the prospect of fifty different regulators.”

Risk of Fragmentation and the Counterargument From States

Arizona is one of several states pursuing enforcement against Kalshi and similar platforms. Regulators argue these contracts constitute illegal wagering under state law.

In May 2025, the Arizona Department of Gaming sent Kalshi a cease-and-desist letter. In March 2026, Kalshi filed a federal lawsuit asserting CEA preemption. A week later, Arizona filed a twenty-count criminal information against the company.

The CFTC separately sued Arizona in April, arguing the state’s actions interfered with the federal framework. The court granted a temporary restraining order halting Arizona’s criminal prosecution.

States maintain they retain authority to protect residents from what they view as unregulated gambling. This position carries risk. A state-by-state approach could undermine the national derivatives market Congress sought to create. It would expose operators to conflicting regulatory demands across jurisdictions.

The ruling highlights a core limitation. While federal preemption appears likely, appeals will ultimately decide the scope. Judge Liburdi signaled he is inclined to stay the Arizona case pending Ninth Circuit resolution of consolidated appeals involving Crypto.com, Robinhood, and Kalshi against Nevada.

Briefings are due by May 15, with responses by May 22. The Third Circuit has already sided with Kalshi on similar preemption arguments in Pennsylvania.

Implications for National Market Uniformity and Tribal Considerations

This decision reinforces CFTC exclusive jurisdiction. It curbs state gambling enforcement against federally regulated event contracts. The outcome promotes uniformity in derivatives markets at a time when prediction markets continue to converge with sports, media, and traditional gaming verticals.

For operators and client-partners navigating this space, the injunction removes immediate enforcement threats in Arizona. It provides breathing room while higher courts clarify boundaries.

Yet the stay pending Ninth Circuit review introduces near-term uncertainty. A patchwork of state actions could persist until appellate clarity emerges. This inflection point tests whether federal oversight will prevail over localized gambling statutes.

The Bottom Line
The preliminary injunction marks a significant victory for federal preemption arguments and CFTC authority over event contracts. By affirming that sports-event contracts fall within the broad statutory definition of swaps and that the CEA occupies the field, Judge Liburdi has signaled strong limits on states’ ability to impose their gambling laws on CFTC-regulated DCMs. As the case potentially stays pending Ninth Circuit review of consolidated appeals, the ruling advances the goal of national market uniformity while highlighting the ongoing tension between federal derivatives policy and state sovereignty. Operators should monitor these appeals closely. The resolution will shape not only prediction markets but the broader convergence of event-based contracts across sports, elections, and emerging verticals.

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