A federal court in New York has handed prediction market operator Kalshi a significant legal setback, ruling that the company is not entitled to preliminary relief from state gambling enforcement while its broader lawsuit continues.
The decision came from Judge Analisa Torres of the U.S. District Court for the Southern District of New York. Torres, who is widely known for overseeing the SEC’s lawsuit against Ripple, rejected Kalshi’s request for a preliminary injunction that would have prevented New York authorities from enforcing state gambling laws against the company’s sports-event contracts.
The ruling represents an important development in the ongoing dispute over whether sports-related prediction contracts should be treated as federally regulated financial products or as gambling activity governed by state law.
Court Finds New York Laws Can Apply
Kalshi brought the case after receiving a cease-and-desist order from the New York State Gaming Commission in 2025. Regulators alleged that the company was offering sports-event contracts without the gaming license required under state law.
According to CoinGape, the order instructed Kalshi to stop “advertising, promoting, administering, managing or otherwise making available sports wagering and/or a mobile sports wagering platform in New York”.
In response, Kalshi argued that its contracts fall under the oversight of the Commodity Futures Trading Commission (CFTC) through the Commodity Exchange Act (CEA). According to the company, federal regulation should take precedence over state gambling rules.
Torres was unconvinced by that position at this stage of the case. In her ruling, she stated: “Kalshi has not shown that it is impossible to comply with both New York gambling laws and the CEA. There is nothing preventing Kalshi from obtaining a license pursuant to New York law and establishing a category of New York market participants that does not discriminate within that New York-resident category.”
The court also determined that Kalshi had not demonstrated a sufficient likelihood of success in the litigation, a key requirement for obtaining preliminary injunctive relief. Torres further concluded that the company failed to establish irreparable harm.
Addressing Kalshi’s claims that enforcement actions and compliance costs would damage its business, the judge wrote: “Although the prospect of being subject to criminal prosecution could demonstrate a showing of irreparable injury, Kalshi’s harms ‘are largely monetary.’ As defendants contend, any civil fines that may be levied against Kalshi can be challenged and vacated if Kalshi ultimately prevails on the merits, which, as stated above, is unlikely.”
The ruling allows New York authorities to continue pursuing enforcement measures. State Attorney General Letitia James has argued that federal regulation does not displace New York’s gambling laws and is expected to seek remedies including restitution, disgorgement, civil penalties and injunctive relief through state court proceedings.
Appeal Filed as Broader Dispute Intensifies
Kalshi responded quickly to the decision. On the same day Torres issued her order, the company filed a notice of appeal with the U.S. Court of Appeals for the Second Circuit.
The appeal extends a growing national legal conflict over prediction markets and sports-event contracts. Courts in different jurisdictions have reached varying conclusions when considering Kalshi’s requests for relief, creating a patchwork of rulings across the country.
Torres acknowledged that other courts have split on similar issues. However, she found that Kalshi had not made a “clear or substantial showing” that it was likely to prevail in New York.
Sports betting attorney Daniel Wallach described the ruling’s potential significance beyond the state. He wrote: “Major loss for Kalshi in the nation’s financial capital, with likely knock-on effects in other cases (esp. Connecticut and other SDNY lawsuits).”
Another statement from Wallach suggested the decision could influence ongoing debates over whether prediction market operators may need state licenses or face restrictions in New York and elsewhere.
Regulatory Challenges Expand Across Multiple States
The New York ruling arrives as prediction market companies face growing scrutiny from regulators and attorneys general throughout the United States.
Kalshi and Polymarket have both encountered legal challenges concerning sports-event contracts, along with broader concerns related to market oversight. A federal judge in Minnesota recently agreed with arguments that platforms such as Kalshi and Polymarket have “far exceeded what Congress initially intended” when establishing the CFTC framework in 1974.
Kentucky has also joined the list of states taking action against prediction market operators. State Attorney General Russell Coleman has argued that Kalshi and Polymarket are offering products subject to gambling laws rather than financial regulations.
Several additional disputes involving Kalshi remain active. In Michigan, a judge granted a temporary restraining order sought by Attorney General Dana Nessel, temporarily blocking sports-event contracts and requiring geolocation measures to prevent access by Michigan users. Reports indicated that noncompliance could have exposed the company to substantial daily penalties.
The company has also challenged a proposed $5 million penalty from the Ohio Casino Control Commission, which accused Kalshi of offering unlicensed sports betting. In New Mexico, Attorney General Raúl Torrez has alleged that Kalshi operates in a manner comparable to a sportsbook without obtaining a gaming license.
Other states that have taken action or initiated proceedings involving prediction market contracts include Arizona, Illinois, Massachusetts, Nevada, Washington and Wisconsin. Wisconsin regulators have targeted several platforms, including Kalshi, Polymarket-related entities, Coinbase, Robinhood and Crypto.com over sports-event offerings.
Meanwhile, the CFTC has continued to support Kalshi’s position in several proceedings and has sought to assert federal jurisdiction over prediction markets. Despite that support, the New York decision adds another challenge for the company as courts continue to examine the relationship between federal derivatives regulation and state gambling laws.