A federal judge granted the CFTC a preliminary injunction against Arizona. At the same time, he signaled a potential stay pending Ninth Circuit ruling.
A federal judge in Arizona has granted the Commodity Futures Trading Commission (CFTC) a preliminary injunction against Arizona officials, concluding 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 concluded that the Commodity Exchange Act (CEA) likely gives the CFTC exclusive jurisdiction over event contracts traded on federally regulated designated contract markets (DCMs), including Kalshi.
The ruling extends an earlier temporary restraining order issued in April. It blocks Arizona from enforcing its gambling laws and pursuing criminal or civil enforcement actions against Kalshi and other CFTC-regulated exchanges while the litigation proceeds.
Judge Liburdi repeatedly emphasized that Congress intentionally created a federal regulatory framework for derivatives markets and that states’ attempts to regulate them would undermine that framework.
The ‘plain meaning’ of Congress’s entrustment of ‘exclusive’ jurisdiction ‘necessarily denies jurisdiction’ to any entity besides the CFTC,” Liburdi wrote.
Judge Finds Event Contracts Qualify as “Swaps”
A central issue in the case was whether Kalshi’s sports-event contracts qualify as “swaps” under the CEA.
Arizona argued that sports outcomes are not “events” under the CEA. The state attempted to distinguish between the sporting event itself and its outcome.
Liburdi rejected that argument. He wrote:
The statutory definition of swap therefore reaches how an event unfolds, not just whether it happens.”
The judge found that Congress intentionally 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 argument that sports outcomes lack sufficient economic significance.
Temperature and precipitation have no intrinsic financial value. Yet the CFTC and the Securities Exchange Commission have consistently treated weather derivatives as swaps.”
The judge concluded that sports and election event contracts operate similarly because 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 Arizona Gambling Laws
After determining that Kalshi’s contracts likely qualify as swaps, the court turned its attention to the preemption argument.
Liburdi concluded that both field preemption and conflict preemption likely apply.
On field preemption, the court found that Congress had created a comprehensive federal regulatory structure, leaving states without authority over swaps traded on federally regulated exchanges.
The CEA occupies the field of swaps and futures traded on DCMs.”
The judge also 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).”
Importantly, the ruling also addressed the CFTC’s “Special Rule” governing event contracts tied to activities such as gaming. Arizona argued that the existence of those rules actually supported state authority.
Liburdi disagreed, writing:
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 judge found Arizona’s enforcement efforts would interfere with Congress’s goal of maintaining national derivatives markets.
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.”
The court also found Arizona’s position would create a fragmented state-by-state system Congress specifically sought to avoid.
If states could prosecute DCM operators for offering event contracts, the operators would face the prospect of fifty different regulators,” the order states.
Judge Signals Potential Stay Pending Ninth Circuit Appeals
In a separate order issued on the same date, Liburdi indicated he is inclined to stay the case pending the outcome of the consolidated case involving Crypto.com, Robinhood, and Kalshi against Nevada in the United States Court of Appeals for the Ninth Circuit.
The consolidated appeals involve similar disputes over whether the CEA preempts state gambling laws. The judge ordered briefings by May 15 and responses by May 22 on whether the Arizona proceedings should pause while the Ninth Circuit resolves those appeals.
Liburdi noted the Third Circuit has already sided with Kalshi on similar issues in Pennsylvania. The appellate court found the company had shown a reasonable likelihood of success on its preemption arguments.
Background on Arizona’s Case Against Kalshi
Arizona is one of several states that have pursued enforcement actions against Kalshi or other prediction markets regarding their sports-event contracts. Regulators argue that these contracts stipulate illegal wagering under state law.
In May 2025, the Arizona Department of Gaming sent Kalshi a cease-and-desist letter. In March 2026, Kalshi responded with a federal lawsuit, arguing that the CEA gives the CFTC exclusive jurisdiction over federally regulated event contracts and preempts Arizona’s gambling laws.
A week later, Arizona filed a twenty-count criminal information against Kalshi in state court. The state accused Kalshi of accepting bets from Arizona residents on various events in violation of state law.
In April, the CFTC separately sued Arizona, arguing that the state’s enforcement actions interfered with the federal regulatory framework governing designated contract markets.
The court later granted the CFTC a temporary restraining order halting Arizona’s criminal prosecution while the litigation proceeded. The state then filed a request for the court to delay the case until a ruling by the Ninth Circuit, a move Libudi now indicates he’s inclined to do.
Featured image: Gonzo fan2007 on Wikimedia Commons (License)
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