Kalshi New York Lawsuit Tests Federal Oversight of Prediction Markets

Prediction market operator Kalshi Inc. has filed a federal lawsuit against the New York State Gaming Commission, escalating a national dispute over whether event trading platforms should be regulated as online gambling sites or financial markets.

The case, lodged in the U.S. District Court for the Southern District of New York, follows a cease-and-desist order issued by the state regulator on October 24, which accused Kalshi of offering unlicensed sports wagering products. In response, the company is asking a federal judge to block enforcement, arguing that its contracts fall under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC) rather than state gambling laws.

Federal Oversight vs. State Authority

At the heart of the dispute is whether Kalshi’s “event contracts”, yes/no markets that let users trade on the outcomes of real-world events such as sports or politics, should be treated as gambling or as legitimate commodity trading. Kalshi maintains that its products are regulated by the Commodity Futures Trading Commission (CFTC) under the Commodity Exchange Act (CEA), which was created to ensure consistent federal oversight and prevent a patchwork of conflicting state regulation.

The New York Gaming Commission contends that the company’s sports-based prediction markets amount to unlicensed wagering. The commission’s cease-and-desist letter alleged Kalshi was running an illegal sports betting operation and demanded that it immediately halt trading in New York or face penalties.

Kalshi argues that such enforcement not only violates federal preemption but also threatens its business operations and partnerships, including with Robinhood, which offers access to Kalshi’s markets.

A Broader Legal Pattern Emerging

The New York lawsuit marks another step in a wider battle between prediction market operators and state regulators across the United States. Kalshi has already faced enforcement actions in multiple states, including Arizona, Illinois, Maryland, Montana, Nevada, New Jersey, and Ohio.

In several of those jurisdictions, Kalshi has filed its own lawsuits, claiming that only the CFTC has the authority to regulate event-based trading. The company has won preliminary injunctions in Nevada and New Jersey, while its request for relief in Maryland was denied and is currently under appeal.

Meanwhile, Massachusetts Attorney General Andrea Campbell has filed a separate lawsuit to block Kalshi’s sports-related contracts, and a coalition of 34 state attorneys general has submitted a brief supporting New Jersey’s enforcement case.

Tribal and State Tensions Add Complexity

The legal standoff extends beyond state lines to tribal jurisdictions, where gaming compacts and sovereignty create additional complications. Tribes such as Wisconsin’s Ho-Chunk Nation and several groups in California have raised objections, viewing prediction markets as unauthorized gambling activities that could compete with tribal operations.

At the same time, state regulators in Illinois, Arizona, Michigan, and Nevada have warned licensed sportsbooks that offering or facilitating prediction markets may breach gambling laws. The Illinois Gaming Board recently cautioned operators that such products “constitute gambling,” sparking concern among mainstream sportsbooks like FanDuel and DraftKings, both of which have started exploring event-based prediction markets.

Arkansas and Other States Join the Debate

Adding to the momentum, Arkansas Attorney General Tim Griffin recently issued a public opinion at the request of state lawmakers, stating that Kalshi’s products appear to fit the legal definition of gambling under state law. The opinion emphasized that renaming betting as “event prediction” does not remove its wagering nature or exempt it from regulation.

This stance aligns with a growing number of state authorities asserting control over what they perceive as unregulated wagering disguised as financial speculation.

The Stakes for the Prediction Market Industry

The outcome of Kalshi’s New York case could reshape how prediction markets are regulated nationwide. A federal victory would strengthen the CFTC’s oversight and affirm that event trading falls under commodities law rather than gambling statutes. Such a result would benefit other firms operating in the space, including Robinhood and Crypto.com, which have faced similar scrutiny.

However, a loss could empower states to impose tighter restrictions, increasing compliance costs and potentially forcing event market operators to exit certain jurisdictions altogether.

With billions of dollars in potential trading volume at stake and competing interpretations of what constitutes gambling, the Kalshi case is quickly becoming a defining legal battle for the future of prediction markets in the United States.