Sports betting and fantasy sports operators may be at risk of losing their licenses if they pursue sports prediction markets, state regulators are warning.
The Arizona Department of Gaming told licensed operators this week that ties to companies offering event contracts “in violation of the laws of [another] jurisdiction … might (depending on circumstances) impact a licensing decision,” according to a letter first reported by InGame. The warning mirrors guidance from the Ohio Casino Control Commission in August, just before Kalshi and Robinhood rolled out NFL betting spreads and totals.
That underscores a dilemma for operators that have already moved into sports contract trading to chase massive markets where sports betting is illegal, like California and Texas.
States target sports prediction markets
Arizona, Illinois, Maryland, Montana, Nevada, New Jersey, Ohio, and Tennessee have issued cease and desists to Kalshi, Robinhood, and Crypto.com.
Regulators in those states argue that sports event contracts are indistinguishable from sports betting and therefore require a license, which none of the exchanges hold. Massachusetts‘ attorney general sued Kalshi earlier this month, alleging the exchange is operating as an unlicensed sportsbook under state law.
Kalshi and its partners counter that they are operating legally under federal oversight as designated contract markets regulated by the Commodity Futures Trading Commission. Courts have so far mostly allowed them to continue listing sports contracts while litigation plays out.
The CFTC has yet to rule on sports despite pressure from states, tribal groups, lawmakers, and leagues.
Arizona regulators flag fantasy apps
The ADG’s letter makes reference to operators like Underdog, which earlier this month, launched prediction markets in 16 states as a service provider to Crypto.com, though not in Arizona.
“We have also learned that several licensees, including Fantasy Sports Contest Operators, are planning to enter the prediction marketplace by acquiring an existing DCM, becoming a DCM or a Futures Commission Merchant (‘FCM’), or associating or partnering with a DCM or FCM directly or indirectly, to offer, enable, or sell event contracts outside the framework of state gambling laws.”
“In addition, even if the licensee is not associated directly with the offering or sale of event contracts to persons in Arizona, its relationship with other persons or entities and conduct in other jurisdictions remains at issue. By way of example only, in determining suitability, the Department will consider any relationship between the licensee (to include its owners, related entities, principals, agents, or employees) and a person or entity offering, enabling, or selling event contracts in Arizona.”
Underdog is licensed in Arizona for fantasy sports and recently relaunched its pick’em product there after regulators previously warned it too closely resembled sports betting. The letter suggests those licenses could now be at risk.
Underdog also holds sports betting licenses in Ohio and North Carolina, where it pulled pick’em contests just before securing permission to operate its sportsbook.
No other regulated sportsbook or fantasy operator currently offers prediction markets.
Sportsbooks weigh next steps
FanDuel has announced a partnership with CME Group to build an exchange focused on financial contracts, though analysts expect it could eventually serve as a pathway into sports. DraftKings has filed with the National Futures Association, as well, and has been linked to acquiring Railbird, a federally licensed exchange.
Both companies were slow to embrace fantasy pick’em, only launching their products after Underdog and PrizePicks negotiated with regulators to allow peer-to-peer formats that stopped short of being deemed sports betting.
In California, tribes have sued Kalshi, backed an attorney general opinion that deemed fantasy sports illegal, and supported legislation that would explicitly ban sweepstakes-style sports betting. Those same tribes are in negotiations with DraftKings, FanDuel, and others on a possible framework to legalize sports betting.
