The fast-growing prediction market Kalshi has launched a fresh legal offensive - this time against the New York State Gaming Commission - accusing the agency of unlawfully targeting its operations and threatening fines over what the state calls unlicensed sports betting.
The company insists it doesn’t run a gambling business at all, but rather a federally regulated exchange, setting up a clash that could reshape how “event trading” is treated under U.S. law.
Kalshi Claims Federal Protection
Filed in a Manhattan federal court, the lawsuit argues that New York regulators have no authority to interfere with its activities because Kalshi operates under the supervision of the Commodity Futures Trading Commission (CFTC). In its complaint, the company says the Gaming Commission’s cease-and-desist order “directly conflicts with federal law” and demands a court injunction to stop the state from imposing penalties.
Kalshi’s position is that its so-called event contracts – markets that let traders speculate on outcomes such as elections, economic data releases, or sporting events – are legitimate financial products, not wagers. The firm says New York’s crackdown amounts to “regulatory overreach,” and that forcing compliance with gambling rules would create chaos for federally regulated exchanges.
The Cease-and-Desist Flashpoint
New York’s Gaming Commission recently sent Kalshi a letter demanding an immediate halt to its operations, claiming it was offering sports wagers without a state license. Regulators accused the firm of “promoting and managing” unapproved betting activity linked to sports outcomes.
Kalshi fired back, asserting that the order violates the Constitution’s Supremacy Clause, which gives precedence to federal authority when conflicts arise. The company says being forced to shut down New York accounts would inflict “irreparable harm” and disrupt its nationwide trading platform.
A Growing Pattern of Legal Fights
This isn’t Kalshi’s first battle with state regulators – far from it. The company has been embroiled in disputes with gaming authorities in Nevada, New Jersey, Maryland, and Ohio, and is defending itself in Massachusetts over similar allegations. In some states, the firm has already scored victories. Courts in Nevada and New Jersey granted temporary injunctions blocking regulators from enforcing local gambling laws against Kalshi, while a Maryland court took the opposite stance earlier this year.
These cases are part of a broader tug-of-war between federal and state authorities over how to define – and control – a new generation of prediction markets.
Event Markets Under Scrutiny
Kalshi’s model allows traders to buy and sell contracts tied to real-world outcomes, effectively placing bets on future events – though the company frames it as data-driven forecasting, not gambling. Similar platforms, including Polymarket, have drawn attention from regulators for the same reason: their structure sits uncomfortably between derivatives trading and sports betting.
Other companies have joined the fight. Crypto.com and Robinhood Markets have both sued state agencies over attempts to classify event contracts as gambling products, arguing that such regulation stifles innovation in financial prediction technology.
What’s at Stake
The Kalshi lawsuit is shaping up as a major test for the future of event trading in the United States. A victory could solidify the CFTC’s dominance over this emerging market, giving legitimacy to platforms that treat event outcomes as financial data points. A loss, on the other hand, could hand states sweeping power to restrict or shut down such markets entirely.
For Kalshi, the battle goes beyond one state’s jurisdiction – it’s a fight for survival in an industry still defining the line between speculation and gambling.
