Kalshi has taken New York regulators to federal court in a move aimed at preventing the state from classifying its sports prediction markets as illegal gambling. The lawsuit, filed Monday, positions the company to control the legal narrative around federal preemption rather than the legality of the contracts themselves—a strategy experts say was designed to give it an upper hand following Crypto.com’s recent courtroom loss in Nevada.
The filing came just three days after the New York State Gaming Commission sent Kalshi a cease-and-desist letter, threatening civil penalties and possible criminal charges if it did not stop offering sports-related event contracts. Kalshi argues that since its markets operate under the supervision of the Commodity Futures Trading Commission (CFTC), federal law should override state gambling restrictions.
Legal expert Daniel Wallach told Decrypt that Kalshi’s decision to sue first was deliberate. He explained that many states must give notice before pursuing legal action against businesses accused of repeated violations, effectively allowing Kalshi to strike first in federal court. By doing so, the company has “narrowly framed” the case around whether the CFTC’s oversight preempts state regulation, rather than debating whether the contracts themselves constitute gambling. Filing in federal court, Wallach noted, lets Kalshi avoid state-level proceedings that would likely focus on the legality of the contracts instead of jurisdiction.
The case comes as part of a broader legal battle over the legitimacy of prediction markets in the United States. Kalshi has previously won injunctions in New Jersey and Nevada, which allowed it to continue operating while cases moved forward. However, it suffered a setback in Maryland, where a judge ordered it to halt sports-event trading—though regulators have permitted temporary continuation during appeals.
Crypto.com, which operates a rival prediction platform, recently faced a harsher outcome. Earlier this month, U.S. District Judge Andrew P. Gordon in Nevada—who had previously sided with Kalshi—denied Crypto.com’s request for an injunction. He ruled that sports-event contracts did not meet the legal definition of swaps under the Commodity Exchange Act. The judge based his decision on congressional intent, concluding that lawmakers never meant to give the CFTC exclusive jurisdiction over sports outcomes.
As a result, Crypto.com has been ordered to geofence Nevada residents by November 3 and close all open sports-event positions while pursuing an appeal. Analysts predict that the regulatory tide may now be turning against prediction market firms, with states like Arizona and Illinois expected to follow New York’s lead.
Despite the mounting challenges, Kalshi’s proactive stance signals its determination to defend its business model on federal grounds rather than fight a patchwork of state gambling laws—an approach that could define the future of event-based trading in the U.S.
