A U.S. District Court Judge has granted Kalshi a preliminary injunction against Arizona. The order bars the state from taking any legal action during the lawsuit. Judge Michael T. Liburdi concluded that federal law preempts state gambling laws as they seek to regulate event contracts traded on CFTC-regulated markets.
The decision reverses an earlier denial from early April. It hands the prediction market operator immediate breathing room in a state that had threatened criminal penalties. For anyone who has run trading floors or built market-making engines this is not abstract legal theater. It is a direct signal on how state regulators can or cannot touch contracts that look like derivatives.
Judge Liburdi Reverses His Own April Ruling
Judge Michael T. Liburdi first denied Kalshi’s motion for a preliminary injunction and temporary restraining order. He ruled that the Anti-Injunction Act barred the court from issuing relief. The April opinion was clear. The court found the AIA applied and no exception fit.
Less than a month later the same judge reached the opposite conclusion. He wrote that federal plaintiffs have demonstrated they are likely to succeed on the merits. The theory has two components. First, event contracts must qualify as swaps. Second, the CEA’s grant of exclusive jurisdiction to the CFTC over swaps preempts state enforcement against those contracts.
Judge Michael T. Liburdi now holds that federal law preempts state gambling laws insofar as they seek to regulate derivatives exchanged on CFTC-regulated markets. The preliminary injunction follows directly from that finding.
Arizona can appeal. Until then the state and its officials are restrained.
The Arizona Department of Gaming Cease-and-Desist Letter
Kalshi filed its preemptive lawsuit on March 12. The trigger was a May 21, 2025 cease-and-desist letter from the Arizona Department of Gaming. The letter directed Kalshi to cease gambling operations in Arizona and desist from engaging in those activities in the future. It threatened criminal penalties for noncompliance.
According to Kalshi’s filing, the department had made numerous statements indicating it believed Kalshi was operating unlawfully under Arizona’s anti-gambling laws by offering event contracts. The agencies also threatened to revoke the license of any entity that partners with Kalshi anywhere in the United States.
The company sought written assurances of non-enforcement from the Arizona Attorney General’s office. Those requests met silence. This came despite prior willingness by the Attorney General to communicate and prior assurances that defendants would not pursue enforcement without prior notice.
An Arizona Department of Gaming spokesperson told Sports Betting Dime the agency is aware of the lawsuit filed by Kalshi but cannot comment further.
The named defendants include Kristin K. Mayes, Attorney General of Arizona, and several high-ranking officials with the Arizona Department of Gaming including its director Jackie Johnson.
What This Means for Operators and Market Makers
Eighteen years on bookmaker trading floors taught one consistent lesson. When regulators treat event contracts as illegal gaming the practical result is frozen liquidity and cautious counterparties. A preliminary injunction removes that immediate threat in Arizona. Platforms can price contracts without the overhang of sudden criminal exposure or license revocation for partners.
The ruling does not resolve the underlying classification fight. It simply says Kalshi has shown a likelihood of success on the argument that these contracts are CFTC-regulated swaps. That shifts the burden and buys time. For prediction market operators it lowers the cost of market entry in contested states. For sportsbooks watching the space it clarifies one more vector where federal preemption can limit state gaming enforcement.
Liquidity follows certainty. The injunction creates a window where traders and liquidity providers can operate without immediate fear of state action. That window matters.
Risks, Counterarguments and the Path Ahead
The decision is not final. Arizona has the right to appeal Judge Liburdi’s order. A higher court could restore the Anti-Injunction Act barrier or reject the swaps classification. Nothing in the opinion binds other states or guarantees nationwide clarity.
State gaming regulators retain strong arguments that event contracts resemble sports betting or traditional gambling under their statutes. The preemption finding rests on specific CEA language and CFTC jurisdiction. Different facts or different contract designs could produce different outcomes. Operators should treat this as jurisdiction-specific relief rather than a blanket shield.
Still the shift from denial in April to injunction in May shows the court found the merits case persuasive on second review. That pattern is worth tracking in other jurisdictions.
The Bottom Line
Kalshi now has a preliminary injunction in Arizona after Judge Michael T. Liburdi reversed his earlier denial and ruled that federal CFTC authority likely preempts state gambling enforcement against its event contracts. The May 21 2025 cease-and-desist letter and threats of criminal penalties and license revocations have been temporarily neutralized. For operators who have spent years managing regulatory risk across fragmented markets this is concrete evidence that the federal preemption argument can move the needle in real time. The appeal window remains open and the broader classification battle continues but the immediate operational path in Arizona is clearer today than it was yesterday. Builders should watch how liquidity and participation respond while preparing for the next round of litigation in other states.
