Arizona, Nevada, and the Limits of Federal Preemption in Prediction Markets
March 2026 delivered two significant legal developments in the ongoing struggle over who regulates prediction markets in the United States. On March 17, Arizona became the first state to bring criminal charges against a prediction market platform, filing 20 counts against KalshiEX LLC in Maricopa County Superior Court. Three days later, a Nevada state judge issued a temporary restraining order blocking Kalshi from offering sports, election, and entertainment event contracts in Nevada. The United States Court of Appeals for the Ninth Circuit had denied Kalshi's request for emergency federal intervention just one day before.
These were not aberrations. They were the foreseeable result of a regulatory approach that left the most important legal questions in event contract regulation officially unresolved. This article follows up on this firm's March 12, 2026 Expert Analysis piece in Law360, which examined what the U.S. Commodity Futures Trading Commission's (CFTC) amicus brief in event contracts litigation left out. What courts did in the week of March 17 answers that question concretely.
The Amicus Brief and Its Strategic Silence
On February 17, 2026, the CFTC filed an amicus brief in North American Derivatives Exchange, Inc. v. Nevada in the Ninth Circuit. An amicus brief is a submission by a non-party that has a strong interest in the outcome of a case. The CFTC used its brief to argue that event contracts are "swaps" under the Commodity Exchange Act (CEA) and that the CEA field-preempts state gambling laws as applied to contracts traded on CFTC-registered designated contract markets. Field preemption means that federal law occupies a regulatory area so completely that state law cannot operate alongside it at all.
The argument was aggressive. It was also incomplete.
The CFTC's brief acknowledged that the commission need not determine the outer boundary between instruments that qualify as swaps and those that might be characterized as wagers under state law. That concession has practical consequences that extend well beyond the Ninth Circuit appeal. More than 3,000 event contracts are currently trading on CFTC-registered exchanges. Every one of them exists in a regulatory space where the federal overseer has formally declined, in a submission to a federal appellate court, to say where its own jurisdiction ends and state gambling authority begins.
When a regulator declines to draw that line, courts draw it themselves. This week, two of them did.
Nevada: Courts Fill the Void
On March 20, First Judicial District Court Judge Jason Woodbury granted the Nevada Gaming Control Board's motion for a temporary restraining order against Kalshi. Judge Woodbury considered the CFTC's preemption theory and addressed it directly. His conclusion was not favorable to Kalshi or to the position the CFTC has taken in litigation.
"The question of federal preemption in this regard is nuanced and rapidly evolving," Judge Woodbury wrote. "At the moment, the balance of convincing legal authority weighs against federal preemption in this context."
He cited the North American Derivatives Exchange v. Nevada decision, which this firm has analyzed previously, as part of the authority he found persuasive. He also found that Nevada's Gaming Control Board faces irreparable harm without court action, including the inability to prevent wagering by minors or by players, coaches, and officials who are in a position to influence the outcomes of the events on which contracts are offered.
The day before the state court issued its order, the Ninth Circuit denied Kalshi's request to pause the Nevada federal court's earlier decision that had sent the case back to state court. The Ninth Circuit also declined to stay the federal order that dissolved the preliminary injunction Kalshi had previously obtained. Two separate requests for federal intervention, denied within 24 hours of each other.
The procedural picture in Nevada now has Kalshi fighting in state court, with the federal appellate court having declined to pull the case back into a more favorable forum. That is a significant deterioration in Kalshi's litigation posture, and it happened in one week.
Arizona: The First Criminal Case
The Nevada developments would have been significant on their own. Arizona went further.
On March 17, Attorney General Kris Mayes filed 16 counts of illegal betting and wagering and 4 counts of election wagering against Kalshi in Maricopa County Superior Court. These are criminal charges. That distinction matters in ways that civil enforcement actions do not capture. A civil enforcement action can be enjoined, litigated, and potentially resolved by a federal court ruling in favor of the platform. Criminal charges present a categorically different kind of institutional and reputational exposure, and they are harder to remove to federal court on preemption grounds.
Arizona filed its charges five days after Kalshi filed its own preemptive civil lawsuit against Arizona gaming regulators, a strategy Kalshi has used in several states to try to establish a favorable federal forum before state enforcement can proceed. In Arizona, the state responded by going to a grand jury.
The charges cover National Football League (NFL) and National Basketball Association (NBA) game contracts, college sports, elections, and legislation outcomes. The election and legislation contract counts deserve separate attention. Courts have been even more reluctant to extend CFTC preemption arguments to election and legislative outcome contracts than to sports contracts. The legal authority available to support preemption in the election contract context is considerably thinner. Charging those counts alongside the sports counts suggests Arizona's attorney general assessed that the legal terrain on election contracts was particularly favorable to the state.
Attorney General Mayes said publicly that Kalshi was using federal court to avoid accountability rather than working within state legal frameworks. That framing reflects the posture states have increasingly adopted: they are not waiting for federal litigation to resolve in platforms' favor before taking enforcement action.
The Infrastructure the CFTC Has Not Yet Built
The deeper issue behind this week's developments is regulatory sequencing. The CFTC moved to approve prediction market platforms, assert broad preemption arguments in litigation, and issue a notice of proposed rulemaking seeking public comment on what rules should govern these markets, all before it resolved the foundational regulatory questions that a complete framework would require.
Consider what those questions include. Insider trading rules in event contract markets require a definition of material non-public information that fits the nature of the contracts being traded. Insider trading doctrine developed primarily in the context of securities markets, where the concept of inside information has decades of case law and regulatory guidance behind it. Event contracts present genuinely different problems. A baseball manager who knows in advance which pitcher will start a game possesses information that could be exploited in a sports event contract market. A legislative staffer with advance knowledge of a bill's outcome could exploit a contract market tied to that legislation. A campaign official with access to internal polling could trade election contracts on that information. The CFTC has not yet issued rules addressing these scenarios with the specificity that a functioning market surveillance regime would require.
The National Futures Association (NFA) is the self-regulatory organization that supervises most CFTC-registered entities. Its rulebook was built for futures commission merchants, commodity pool operators, and commodity trading advisors, which are the traditional participants in derivatives markets. Prediction market platforms serving retail customers who want to trade on sporting event or election outcomes are a different kind of entity with different operational characteristics and different customer bases. Applying the NFA's existing supervision framework to these platforms requires interpretive work that produces uncertain compliance results. The NFA's rules were not designed with these products in mind.
The CFTC's March 12 notice of proposed rulemaking confirms that the foundational regulatory work remains incomplete. The agency asked the public for comment on whether event contract markets should be permitted to offer margin trading, what categories of contracts should be prohibited on public interest grounds, and whether certain participants should be barred from trading on events where they have relevant inside knowledge. These are not refinements to a complete framework. They are the framework itself, still being designed, while platforms are already operating and states are already filing criminal charges.
What This Means for Platforms and Participants
The CFTC's preemption theory may eventually prevail. A circuit court or the Supreme Court may hold that the CEA field-preempts state gambling laws as applied to contracts on CFTC-registered exchanges. That outcome is legally possible.
It is not guaranteed, and the timeline is not short. Two courts in one week rejected the preemption argument. The Ninth Circuit declined to intervene twice. Arizona went to a grand jury. The litigation map now includes criminal dockets, state court injunctions, federal appeals, and active enforcement in at least eight states. Platforms operating in this space cannot treat the CFTC's current litigation posture as a substitute for compliance analysis at the state level. The CFTC's assertion of exclusive jurisdiction is a legal argument that courts will resolve over time. It is not a resolution, and it does not operate as a safe harbor in the interim.
This firm will continue to monitor and analyze developments in event contract regulation.
R. Tamara de Silva is the Managing Attorney of De Silva Law Offices, LLC, a financial regulatory law firm in Chicago specializing in CFTC and NFA regulatory matters, securities law, derivatives, and event contract compliance. This article is for general informational purposes only and does not constitute legal advice.