Event-based contracts platform Kalshi filed a federal lawsuit this week against New York's gaming regulator, hours after receiving a cease-and-desist order that threatened criminal prosecution and civil penalties for offering sports-related prediction markets in the state.
Kalshi Takes New York to Court Over Sports Betting Shutdown
The Manhattan-based company asked the U.S. District Court for the Southern District of New York to block enforcement of state gaming laws, claiming New York has no authority over its federally regulated exchange . The lawsuit names the New York State Gaming Commission and its executive director Robert Williams, along with seven commissioners.
Kalshi operates as a designated contract market under the Commodity Futures Trading Commission (CFTC ), which the company says gives it federal protection from state gambling regulators. The platform lets users trade positions on future events, including sports outcomes like NCAA tournament brackets and golf championships.
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The Gaming Commission sent its order Friday evening, listing 20 sports contracts it deemed unlawful and demanding the platform “cease and desist immediately” from offering sports wagering without a state license. The agency warned it could “levy and collect civil penalties and fines” for violations of New York's Racing Law and threatened potential criminal charges under state penal statutes.
“The Gaming Commission's cease-and-desist letter, sent on a Friday evening, demands that Kalshi immediately cease operating in New York or face criminal and civil liability,” the company said in its complaint. Kalshi argued it had no choice but to sue because contracts were set to trade over the weekend.
Federal Courts Split on Jurisdiction
Kalshi won preliminary injunctions in Nevada and New Jersey earlier this year, with judges in both states agreeing that federal law likely preempts state gambling regulations for CFTC-approved exchanges. A Nevada judge wrote in April that “because Kalshi is a CFTC-designated DCM, it is subject to the CFTC's exclusive jurisdiction and state law is field preempted.”
But the company lost in Maryland in August when a federal judge denied its request to block state regulators there. That case is now on appeal.
The New Jersey case has also moved to the Third Circuit after state officials appealed their preliminary loss. Kalshi faces similar legal battles in Ohio and faces a lawsuit brought by Massachusetts regulators.
The company points to a 1974 statute that gave the CFTC “exclusive jurisdiction” over derivatives trading on approved exchanges. Congress wanted to avoid what one senator called the “total chaos” of subjecting exchanges to 51 different state regulatory schemes, according to legislative history cited in the complaint.
Pressure Builds on Federal Regulator
The lawsuit comes as the CFTC faces growing criticism from lawmakers over its handling of sports event contracts. Six senators, led by Catherine Cortez Masto of Nevada and John Curtis of Utah, sent a letter to acting CFTC Chair Caroline Pham in September complaining that the agency is “implicitly permitting sports gaming products that are regulated by states and tribes.”
The CFTC can review event contracts involving “gaming” under a provision of the Commodity Exchange Act, but hasn't initiated reviews of any of Kalshi's sports contracts. The agency told a federal appeals court last year that “due to federal preemption, event contracts never violate state law when they are traded on a DCM.”
Kalshi began offering sports contracts in January after self-certifying them under CFTC rules. The platform allows users 18 and older to trade, while New York requires sports bettors to be 21. The company lacks some safeguards required of state-licensed sportsbooks, including responsible gaming tools and anti-money laundering controls, according to the American Gaming Association.
Critics warn that letting event contracts circumvent state oversight could undermine decades of state and tribal authority over gambling. A group of 36 state attorneys general filed a brief earlier this year warning that “eliminating the States' ability to regulate online sports betting would pose very serious risks to the States' citizens.”
Business at Stake
Kalshi argues in its complaint that complying with New York's order would “threaten Kalshi's viability and require devising complex technological solutions whose feasibility is entirely untested and unclear.” Blocking New York users from certain contracts could also violate CFTC rules requiring exchanges to operate nationally, potentially jeopardizing its federal approval.
The platform claims shutting down operations in New York would cause “immediate and irreparable harm” to the company, its customers and business partners. New York is home to Kalshi's headquarters and represents a major market for event contracts.
Similar platforms have filed their own federal lawsuits claiming state overreach. Robinhood Markets and Crypto.com both sued state regulators over attempts to block event contract offerings, though a Nevada judge denied Crypto.com's injunction request earlier this month.
The case will likely turn on whether judges view Kalshi's sports contracts as derivatives subject to exclusive CFTC oversight or as gambling products that states have traditionally regulated. With multiple federal courts already weighing in differently, the dispute could eventually reach appellate courts or the Supreme Court.
