Kalshi suffered a major legal setback Tuesday in its lawsuit against the New York State Gaming Commission, after a federal judge denied the company’s request to block state gambling regulators from enforcing sports betting laws against its sports prediction markets.
The case stems from an October cease-and-desist letter from the commission, which accused Kalshi of illegally offering unlicensed mobile sports wagering in New York through its sports event contracts. Kalshi sued, arguing the Commodity Exchange Act (CEA) gives the Commodity Futures Trading Commission (CFTC) exclusive jurisdiction over those contracts and preempts New York gambling law.
Judge Analisa Torres of the Southern District of New York rejected that argument at the preliminary injunction stage, ruling that Kalshi had not shown it was likely to succeed on the merits. The decision does not shut down Kalshi’s broader prediction market business in the state, but it directly affects the offering of sports event contracts, the product category responsible for the overwhelming majority of recent trading volume on the exchange.
Losing access to sports contracts in New York, absent a stay or reversal, could be a significant blow to Kalshi because the Empire State is one of the largest sports betting markets in the country.
Kalshi filed a notice of appeal to the Second Circuit later Tuesday, teeing up another major appellate battle over whether federally regulated prediction markets can offer sports contracts despite opposition from state gambling regulators.
New York officials welcomed the decision Wednesday. In a joint statement, Gov. Kathy Hochul and Attorney General Letitia James said New York’s gambling laws are designed to protect consumers and that Kalshi “tried to ignore them.”
“We will continue to hold all gambling platforms accountable to the law — and that includes prediction markets,” they said.
Judge assumes sports contracts are indeed swaps
A central feature of Torres’ opinion is that she did not resolve one of the industry’s biggest legal questions: whether Kalshi’s sports event contracts qualify as swaps under the CEA.
Instead, she assumed they did.
“For the purposes of resolving Kalshi’s motion, consistent with the approach of other courts, the Court assumes without deciding that Kalshi’s sports-event contracts are swaps under the CEA,” Torres wrote.
That assumption makes the ruling especially significant because it sidesteps a threshold issue that has divided courts in other prediction market cases. Rather than deciding whether Kalshi’s sports contracts fall within the CFTC’s authority, Torres concluded that even if they are federally regulated swaps, Kalshi had not shown that New York’s gambling laws are preempted by federal law.
Instead, the opinion focused on whether Congress intended the CEA’s grant of “exclusive jurisdiction” to the CFTC to prevent states from enforcing their own gambling laws against sports event contracts.
Torres ultimately concluded it did not.
“New York gambling laws as applied to Kalshi’s sports-event contracts are not preempted by the CEA,” she wrote.
Court says CEA leaves room for state gambling laws
Torres rejected Kalshi’s argument that the CFTC’s exclusive jurisdiction over swaps leaves no room for New York to enforce its gambling laws.
She began from the premise that gambling regulation is a traditional area of state authority, meaning courts should not assume Congress displaced state law unless that was its clear purpose. Torres then pointed to the structure of the CEA, including language saying nothing in the relevant section should “supersede or limit” other state or federal regulatory authority.
The judge also relied on the CEA’s special rule for event contracts, which allows the CFTC to prohibit contracts involving activity that is unlawful under state or federal law, gaming, terrorism, assassination, war or similar activity. To Torres, that language cut against Kalshi’s position because it showed Congress expected state law to remain relevant.
“Congress’ enactment of the Special Rule in 7 U.S.C. § 7a-2(c) demonstrates its intent that some state law and regulation should operate in tandem with the CEA,” Torres wrote.
Torres said the special rule’s text “clearly reflects an affirmative intent to preserve state laws governing whether particular conduct is lawful or unlawful.”
She also cited congressional debate around Dodd-Frank, including comments from Sen. Blanche Lincoln, who warned that event contracts could easily be built around the Super Bowl, Kentucky Derby or Masters and “would be used solely for gambling.”
Self-certification doesn’t shield Kalshi from state law
One of Torres’ sharpest rebukes was directed at Kalshi’s argument that the CFTC effectively approved its sports contracts by allowing them to take effect through the agency’s self-certification process.
Kalshi argued that because the CFTC did not object after the contracts were self-certified, New York’s attempt to regulate them would interfere with the agency’s authority. Torres disagreed, writing that self-certification is not the same as a determination that a contract is lawful and that the CFTC still has authority to decide whether an event contract violates the agency’s public-interest rules.
“The agency’s inaction is not proof that the sports-event contracts are regulated by or permissible under the CEA,” she wrote.
Torres also rejected Kalshi’s argument that complying with New York law would be impossible because CFTC rules require designated contract markets to provide “impartial access” to their exchanges. Kalshi argued that if it had to geoblock New York users or otherwise restrict access to comply with state law, it could run afoul of federal rules requiring exchanges to apply access standards fairly and without discrimination.
Torres found that argument unpersuasive. She wrote that nothing in the CFTC’s impartial-access requirement prevents Kalshi from obtaining a New York license or creating a separate category of New York participants, so long as users within that category are treated equally. Because Kalshi had not shown it was impossible to comply with both federal and state law, the judge rejected its conflict-preemption argument.
Judge finds New York’s interests outweigh Kalshi’s
Torres also concluded that Kalshi failed to show it would suffer irreparable harm without a preliminary injunction, finding that many of the company’s claimed injuries, including compliance costs and potential civil penalties, were largely monetary or speculative.
The company also argued that New York enforcement could disrupt its nationwide business, require costly geolocation measures and even jeopardize its designation as a CFTC-regulated exchange. Torres found there was no evidence the CFTC was likely to revoke that status, noting Kalshi has faced similar litigation in other states without losing its designation.
By contrast, Torres said New York has a strong interest in enforcing its gambling laws and allowing the Gaming Commission to carry out statutes enacted by the state legislature. She also pointed to the state’s interests in regulating sports wagering, including concerns over gambling addiction, proposition betting and the integrity of college sports.
Torres denied the motion after finding that Kalshi failed to satisfy the requirements for a preliminary injunction, including showing it was likely to win the case, would suffer irreparable harm and that its interests outweighed New York’s.
Appeal could shape prediction market fight nationwide
Kalshi’s immediate appeal means the New York fight now moves to the Second Circuit, where the company is expected to seek emergency relief allowing it to continue offering sports event contracts in the state while the appeal proceeds.
Sports betting attorney Daniel Wallach said the ruling could have “domino effects” in related litigation, including the CFTC’s lawsuit against New York, possible state enforcement against Kalshi, and pending preliminary injunction fights in Connecticut.
More broadly, the ruling adds another influential opinion to the growing split over whether federally regulated prediction markets can offer sports event contracts without complying with state gambling laws.
Kalshi has won major rulings in New Jersey and Tennessee, while courts in New York, Maryland, Arizona, Nevada and the Sixth Circuit have sided with state regulators or rejected similar injunction requests.
With appeals now pending in multiple jurisdictions, the dispute appears increasingly likely to be resolved at the federal appellate level and could ultimately require intervention by the U.S. Supreme Court if the circuit split deepens.
