A federal judge in New York has refused to block state gambling regulators from enforcing their laws against prediction market operator Kalshi, delivering a significant setback to the company as it fights a widening legal battle over whether its event-based contracts are federally regulated financial products or unlawful gambling under state law.
Judge Analisa Torres of the U.S. District Court for the Southern District of New York denied Kalshi’s request for an order that would have stopped New York from applying its gambling statutes while the case moves forward. In a ruling issued Tuesday, Torres found that Kalshi had not shown it was likely to succeed on its claim that federal commodities law overrides New York’s authority to regulate gambling.
The decision means New York can continue to pursue enforcement of its gambling laws against Kalshi’s sports-event contracts, despite the company’s status as a federally regulated marketplace under the Commodity Exchange Act. Kalshi has appealed the ruling to the U.S. Court of Appeals for the Second Circuit.
The case is being closely watched because it sits at the center of a national dispute over prediction markets, a fast-growing sector where users trade contracts tied to the outcomes of real-world events. These markets have expanded beyond politics and economics into sports, culture, weather, entertainment and other categories, raising difficult questions for regulators about where financial trading ends and gambling begins.
Torres concluded that the Commodity Exchange Act, known as the CEA, does not automatically preempt state gambling laws. In her view, New York’s rules do not directly conflict with the federal framework governing Kalshi’s exchange, and Congress did not clearly intend to strip states of their traditional authority over gambling.
“Regulating gambling remains a traditional state power,” the ruling said in substance, rejecting Kalshi’s argument that federal registration gives it broad authority to offer the disputed contracts nationwide without state gaming approval.
The court also noted that Kalshi could seek a state license if required, and that such a requirement would not necessarily make compliance with federal law impossible. That point was central to the ruling because preemption claims often turn on whether a party can follow both state and federal rules at the same time.
For Kalshi, the decision is more than a procedural loss. It challenges one of the company’s core legal arguments: that its federal oversight by the Commodity Futures Trading Commission gives it a uniform national framework for listing event contracts, including contracts based on sporting outcomes. State regulators have taken the opposite position, arguing that contracts tied to sports results look and function like bets, regardless of whether they are traded on a federally registered exchange.
What the court said
Torres found that Kalshi did not meet the legal standard needed to obtain emergency relief. To secure the injunction it sought, the company had to show, among other things, a strong likelihood of success on the merits and a risk of irreparable harm without court intervention. The judge was not persuaded that Kalshi had made that showing.
The ruling emphasized that federal regulation under the CEA does not create a blanket shield against all state law. While the CFTC oversees designated contract markets and derivatives trading, states have long held responsibility for gambling and gaming enforcement within their borders.
That distinction is critical. Kalshi says its contracts are regulated event-based financial products. New York says at least some of those contracts, particularly those linked to sports outcomes, fall within the state’s gambling prohibitions unless the operator has the required approval.
The court sided with New York at this stage, at least on the question of whether the state can continue enforcing its laws while the case is litigated. The ruling does not finally resolve the broader legal issue, but it signals that Kalshi faces a steep challenge in convincing courts that federal commodities regulation fully displaces state gambling authority.
Torres also pointed to provisions within the CEA that preserve certain roles for states, including oversight of conduct that may overlap with trading activity. The decision found no clear conflict between New York’s gambling laws and Kalshi’s obligations as a federally regulated marketplace.
In practical terms, the judge rejected the idea that being regulated by the CFTC automatically gives a prediction market permission to operate every type of event contract in every state.
Why the ruling matters
The New York ruling is important because it adds weight to the view that prediction markets may have to comply with both federal commodities rules and state gambling laws. That creates a more complicated legal environment for platforms and users, especially when contracts involve sports.
For years, prediction markets have argued that they serve a different purpose from gambling by producing market-based forecasts and allowing traders to take positions on measurable outcomes. Supporters say these markets can improve price discovery and provide useful signals about public expectations.
State gaming regulators, however, are focused on how the products work from the user’s perspective. If a customer puts money at risk on whether a team wins a game, whether a player reaches a performance metric, or whether a tournament produces a certain outcome, regulators may view that activity as sports betting.
The difference in terminology matters less to states than the substance of the transaction. New York’s position is that calling the products “event contracts” does not remove them from gambling law if they operate like wagers.
The ruling therefore strengthens the hand of state regulators seeking to police sports-related prediction markets. It also raises operational risk for platforms that have tried to scale nationally while relying on federal approval.
For traders, the immediate effect is uncertainty. Access to certain markets could change quickly depending on state enforcement actions, court orders, licensing decisions or geofencing requirements. A contract available one week may become unavailable the next if a court or regulator acts.
A broader fight over jurisdiction
The dispute between Kalshi and New York is only one part of a larger conflict involving state agencies, federal courts and the CFTC. The central question is whether event contracts are primarily financial instruments under federal law or gambling products that states can restrict.
The CFTC oversees Kalshi as a federally regulated marketplace. Kalshi has argued that this federal status places its event contracts under the CFTC’s jurisdiction, limiting the power of states to interfere. State regulators counter that federal registration does not authorize an operator to bypass local gambling rules.
This disagreement has already produced legal fights in several states. In Michigan, a court recently granted a temporary restraining order that prevents Kalshi from offering certain products in the state. The order, issued by Ingham County Judge Rosemarie Aquilina, remains in effect until at least July 13 and includes potential fines of $120,000 per day for failure to comply with geofencing requirements.
That Michigan order shows how quickly enforcement pressure can affect market access. If a platform must block users in a state, traders living there may lose the ability to open new positions, and in some cases may face limits on how existing positions are handled.
Kalshi has also filed a federal lawsuit in Illinois over a new state regulatory framework that took effect on July 1. The Illinois law requires operators to obtain state-specific approval and imposes a 0.2% charge on the value of certain transactions involving digital assets provided to residents of the state. Kalshi is seeking to block the measure, arguing that it improperly interferes with federally regulated activity.
At the federal level, the CFTC has also taken steps to clarify its authority over event contracts. The question of exclusive federal jurisdiction remains unsettled and may eventually require higher-court review if rulings continue to diverge across jurisdictions.
Sports contracts draw the most scrutiny
The most controversial products are sports-event contracts. These instruments allow traders to take positions on outcomes linked to games, tournaments or athletic performance. While prediction markets may also offer contracts tied to elections, inflation, weather, interest rates or entertainment awards, sports contracts have drawn sharper attention from state gaming commissions.
That is because sports betting is already heavily regulated at the state level. Since the U.S. Supreme Court opened the door for states to legalize sports wagering in 2018, states have built detailed licensing, taxation, consumer protection and enforcement systems around sportsbooks. Regulators are unlikely to allow a separate market structure to offer similar exposure without meeting comparable requirements.
Kalshi’s position is that its products are not traditional sportsbook bets but standardized contracts traded on a regulated exchange. The company argues that exchange-based event contracts serve a broader economic function and are subject to CFTC oversight.
State regulators say that distinction does not eliminate the gambling character of sports-outcome contracts. From their perspective, a person risking money on an outcome tied to a game is engaging in activity that falls under gaming law, even if the trade is structured through an exchange rather than a sportsbook.
Torres’ ruling does not decide the merits of that debate once and for all. But it does make clear that, at least in New York, Kalshi cannot assume that federal oversight prevents the state from enforcing its gambling statutes while the case continues.
Market activity continues to rise
The legal pressure has not stopped prediction market activity from growing. Kalshi recorded about $33 billion in trading volume in June, according to figures cited in the dispute. That compared with a combined $13.95 billion for competitor Polymarket and its U.S. platform.
Other reported market data showed leading prediction market volume rising sharply from May to June, helped in part by activity linked to the 2026 FIFA World Cup. One leading platform recorded more than $31 billion in June volume, up more than 70% from nearly $18 billion in May. Combined monthly volume across major platforms reportedly reached $44.8 billion in June.
Those numbers show strong engagement from traders even as legal risks grow. The volume also helps explain why states are paying closer attention. As prediction markets move from niche political forecasting tools into large-scale platforms with sports and other mainstream products, regulators are more likely to treat them as significant consumer markets.
High trading volume can also increase the stakes for court decisions. A single injunction, enforcement action or licensing requirement can affect large sums of open interest and a wide user base. Platforms must also manage the technical challenge of excluding users from specific states while maintaining operations elsewhere.
Legal uncertainty may reach the Supreme Court
The patchwork of rulings across states could increase the odds that the Supreme Court eventually reviews the core jurisdictional issue. If federal courts reach different conclusions about whether the CEA preempts state gambling law, the legal conflict may become difficult to resolve without a national ruling.
A related case involving New Jersey is already drawing attention. Justice Samuel Alito has set an August 4 deadline for New Jersey to file a petition with the Supreme Court after a lower court previously sided with the prediction market operator in that dispute.
If the Supreme Court takes up the issue, the outcome could shape the future of prediction markets in the United States. A ruling favoring broad federal preemption could give federally regulated platforms more room to operate across state lines. A ruling favoring state authority could require platforms to secure gaming licenses or withdraw certain products from states that object.
Until then, the industry is likely to remain fragmented. Some courts may allow products to continue under federal supervision, while others may permit state regulators to block them. That creates a state-by-state map of availability that can shift quickly.
What comes next
Kalshi’s appeal to the Second Circuit will be the next major step in the New York case. The appeals court could uphold Torres’ ruling, reverse it, or narrow the issues. A reversal would strengthen Kalshi’s position, while an affirmance would reinforce state authority and could encourage other regulators to pursue similar enforcement actions.
In the meantime, New York may continue applying its gambling laws to the disputed contracts. Michigan’s order remains another immediate pressure point, and Illinois presents a separate challenge involving licensing and transaction charges.
For traders, the main takeaway is that access to event contracts increasingly depends not only on federal regulation but also on state law. Platform availability, product listings and account access may vary by location as courts and regulators continue to act.
The New York ruling does not end the national fight over prediction markets. It does, however, make one point clear: federal registration alone may not be enough to protect sports-event contracts from state gambling enforcement.
Curious about regulated event markets after this ruling? Explore how prediction markets could evolve by 2026 and what traders should expect.
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