Warning Issued by Arizona Gaming Department Regarding Prediction Market Use

Arizona’s Gambling Regulator Issues Warning

In late August, the Arizona Department of Gaming (ADG) followed the Ohio Casino Control Commission’s lead by alerting licensed operators about the potential risks of engaging with prediction markets. These concerns extend even to activities occurring outside of Arizona, emphasizing how such involvement could impact an operator’s licensure within the state.

ADG’s Firm Position on Prediction Markets

The ADG, through a letter from Director Jackie Johnson, made it clear that operators connected to companies dealing with event contracts could face consequences regarding their licensing status in Arizona. The letter highlighted that offering or selling event contracts to residents of Arizona without proper ADG licensing constitutes a violation of state law.

Director Johnson further explained that if a licensed entity is found collaborating with companies selling event contracts in jurisdictions where such activities are unlawful, it could influence licensing decisions. Relationships with entities such as designated contract markets or futures commission merchants are under strict scrutiny, even if they operate beyond Arizona’s borders.

This cautionary stance comes amid increasing interest from gambling and fantasy sports companies in expanding their offerings into prediction markets. Although Arizona has a robust regulated betting environment, it maintains strict regulations to prevent operators from circumventing state laws by engaging in these activities elsewhere.

Recent Enforcement Actions and Industry Reactions

Earlier this year, the ADG issued cease-and-desist orders to companies like Kalshi, Robinhood, and Crypto.com for running unauthorized sports betting products. Similar warnings have been sent in at least six other states. To date, Arizona has not pursued lawsuits related to prediction markets.

A notable case involves Arizona-licensed Underdog Fantasy, which recently introduced event contracts in multiple states by acting as a technology provider with Crypto.com. While no major sportsbooks or fantasy operators have widely launched prediction markets yet, FanDuel has indicated intentions to collaborate with the CME Group on a product focused on financial contracts.

With prediction markets potentially expanding nationwide, including states like California and Texas where sports betting remains illegal, Arizona operators face a challenging decision. Despite the risks, the value of Arizona’s established regulated market may discourage operators from jeopardizing their licenses by engaging in unapproved activities elsewhere.