A federal court has dismissed a lawsuit by prediction platform Kalshi, which sought to bar New York State from applying its gambling laws to the platform's sports contracts. Judge Analisa Torres of the Southern District of New York denied a preliminary injunction, dealing a serious blow to the company's ambitions.
This ruling is just the first round in a protracted legal battle. Kalshi's management has already filed an appeal with the Second Circuit Court of Appeals. The dispute unfolds against the backdrop of a larger confrontation between the platform and regulators in more than a dozen U.S. states.
The Essence of the Court Ruling
The central question is whether Kalshi's sports event contracts fall under federal regulation or state gambling laws. New York's regulator insists that such contracts violate local legislation. Kalshi, in turn, asserts the primacy of the federal Commodity Exchange Act (CEA).
Judge Torres sided with the state. According to her conclusion, New York's gambling laws are not preempted by federal law in this case. The platform, in the court's view, "has not shown a convincing likelihood of success on the merits." Torres emphasized that the CEA still leaves states the authority to regulate related issues arising from the trading of swaps and derivatives. Gambling regulation is a traditional prerogative of the states, and the court refused to interpret the exclusive jurisdiction of federal law as "leaving no room for state legislation."
The judge also noted that nothing prevents Kalshi from obtaining a license under New York law. Compliance with local norms is an additional regulatory requirement, but it does not directly conflict with federal law. Kalshi's attempt to avoid this requirement was deemed unfounded.
A Broader Battle with States
According to legal experts, this ruling will create a dangerous precedent for Kalshi's other disputes. The platform, federally regulated by the Commodity Futures Trading Commission (CFTC), continues to resist states' attempts to ban its sports contracts.
Last month, a Michigan court issued a temporary injunction, blocking the platform from offering sports contracts in the state. Around the same time, Kalshi filed a lawsuit against Illinois over a new 0.2% tax on digital asset transactions for state clients.
Notably, the federal regulator sided with the platform. In April, the CFTC filed a lawsuit against New York, seeking recognition that federal law grants it exclusive authority over event contracts.
Kalshi remains the world's largest prediction platform by trading volume, ahead of Polymarket. In June, monthly trading volume reached $33 billion.
Cryptalist Analysis: Kalshi's defeat in New York is a landmark signal for the entire event contracts industry. The court made it clear that federal regulation is not a "shield" against local gambling laws. This could trigger a wave of similar lawsuits from other states and seriously complicate Kalshi's operational model. The platform finds itself in a vulnerable position: its success at the federal level now faces strict local constraints. The outcome of the appeal will be critical for the future of the entire prediction market in the U.S.