A federal judge in Arizona has temporarily blocked state officials from pursuing gambling enforcement against Kalshi, handing the prediction market company another important court victory as legal fights over event-based trading continue spreading nationwide.

In a 17-page order released Tuesday, U.S. District Judge Michael Liburdi said federal commodities law likely takes priority over Arizona gambling rules when contracts are traded through exchanges overseen by the Commodity Futures Trading Commission.

The Court concludes that federal law preempts state gambling laws insofar as they seek to regulate derivatives exchanged on markets regulated by the CFTC,” Liburdi wrote.

The ruling granted a preliminary injunction requested by the United States and the CFTC after Arizona regulators accused Kalshi of offering illegal sports and event wagering. State officials had previously sent the company a cease-and-desist order demanding it “cease gambling operations in Arizona” while also warning that criminal penalties could follow.

Kalshi runs a federally regulated designated contract market where users trade contracts tied to election results, sporting events, and other real-world outcomes. The company has consistently argued that those products qualify as federally supervised financial derivatives rather than gambling activity controlled by individual states.

Judge says federal law likely controls event contracts

Liburdi said the Commodity Exchange Act gives the CFTC “exclusive jurisdiction” over swaps and other qualifying derivatives listed on federally regulated exchanges. He also determined Kalshi’s contracts likely meet the legal definition of swaps under federal law.

Arizona officials argued contracts tied to sports outcomes should not receive the same treatment because they rely on game results instead of economic indicators. The judge rejected that position, writing that Congress intentionally used broad statutory language and that sports results still qualify as “events” or “occurrences” under federal commodities rules.

The order also said these contracts can carry financial consequences because businesses and investors may use them to hedge against risks tied to real-world developments.

Liburdi pointed to Congress expanding derivatives oversight through the 2010 Dodd-Frank Act, saying lawmakers repeatedly strengthene...