Federal Authority Versus State Regulations in Kalshi's Legal Case in New York

KalshiEX LLC has intensified its dispute with state authorities by initiating a federal lawsuit in New York, aiming to prevent the state from applying its gambling regulations to the platform’s sports-related prediction contracts. Filed in the U.S. District Court for the Southern District of New York, the suit contends that federal law supersedes state authority over Kalshi’s products, which the company describes as commodity futures contracts regulated at the federal level, according to

. This legal action comes after Crypto.com, a competitor, recently lost a similar case in Nevada when a judge rejected its injunction request. New York is now the eighth state to send Kalshi a cease-and-desist order, as .

The New York State Gaming Commission issued its cease-and-desist letter on October 24, alleging that Kalshi was running an unauthorized sports betting service, according to

. The commission pointed to examples like contracts on whether a specific person would achieve a golf grand slam by a certain date, which it considers violations of state gambling statutes, as reported by . In response, Kalshi filed for a preliminary injunction to stop enforcement, arguing that its contracts fall solely under the U.S. Commodity Futures Trading Commission (CFTC) and the Commodity Exchange Act. The company maintains that letting states regulate these contracts would result in inconsistent and conflicting rules, undermining federal regulation.

Kalshi’s legal tactics have met with varied outcomes. Courts in Nevada and New Jersey granted preliminary injunctions in Kalshi’s favor, finding that CFTC oversight likely overrides state law. However, a Maryland judge recently refused a similar request, stating it was “highly unlikely” that Congress meant to displace state gambling rules, according to

. Despite these hurdles, Kalshi is pushing forward with expansion, with CEO Tarek Mansour recently revealing plans to enter more than 140 countries. The company also collaborates with brokers such as Robinhood to distribute its event contracts.

Legal analysts believe Kalshi’s proactive lawsuits are a strategic choice. Daniel Wallach, an attorney specializing in sports betting, explained that most states require prior notification before suing businesses for repeated infractions, which allows Kalshi to present its arguments in federal court first. By centering its case on federal preemption rather than debating whether its products are gambling, Kalshi sidesteps more controversial issues. Nevertheless, states including Arizona, Illinois, and Massachusetts have also issued warnings or filed lawsuits, indicating a broader regulatory pushback, as

.

The results of these legal battles could reshape how prediction markets are regulated. If Kalshi prevails, it could operate across the country under federal supervision, possibly paving the way for other regulated competitors. If the states win, prediction markets would have to comply with a patchwork of state rules, offering contracts only where sports betting is allowed. The dispute could ultimately be decided by the Supreme Court, as lower courts continue to wrestle with the balance between federal and state control over financial derivatives.

While defending its business model, Kalshi faces practical obstacles. Blocking users in states like New York—where monthly sports betting volume reaches $2.29 billion—could be financially damaging. At the same time, prediction markets are gaining mainstream attention, with New York mayoral candidate Zohran Mamdani referencing Kalshi’s odds during a campaign event. The ongoing case highlights both the increasing prominence of prediction markets and the unresolved questions about their regulatory future.