Kalshi Appeals to Second Circuit After Federal Judge Sides With New York in Gambling Enforcement Fight

A federal judge has denied Kalshi‘s request to prevent New York from enforcing its gambling statutes against the prediction market operator, and the company wasted no time taking the fight to a higher court. Southern District of New York Judge Analisa Torres rejected Kalshi’s motion for a preliminary injunction in KalshiEX LLC v. Williams on Tuesday, and Kalshi filed a notice of appeal the same day, moving the case to the U.S. Court of Appeals for the Second Circuit.

The ruling is the latest flashpoint in a sprawling legal battle over whether prediction markets can offer sports-related contracts without state sportsbook licenses, a question now playing out in courtrooms across more than a dozen states — one that has fueled ongoing debate over whether prediction markets should be regulated like traditional sportsbooks.

The Core Legal Question

At issue is whether Kalshi’s sports-event contracts qualify as federally regulated derivatives under the Commodity Exchange Act or fall instead under state gambling law. The New York State Gaming Commission argues the contracts violate state statutes, while Kalshi maintains that its status as a CFTC-regulated exchange preempts local enforcement. Torres sided with the state.

“The Court finds that New York gambling laws as applied to Kalshi’s sports-event contracts are not preempted by the CEA and Kalshi has not, therefore, made a clear or substantial showing that it is likely to succeed on the merits,” she wrote in her order. Torres noted that the CEA leaves room for states to regulate related aspects of swaps and other financial products traded on designated contract markets, and pointed out that Kalshi retains the option of applying for a New York license instead of fighting enforcement in court.

Sports and gaming law attorney Daniel Wallach described the outcome as consequential for Kalshi’s other pending disputes, calling it a “major, major loss for Kalshi in the financial capital of the US, with likely knock-on effects in other cases,” and singling out Connecticut and other Southern District of New York lawsuits as likely to feel the ripple effects. New York Attorney General Letitia James has disputed Kalshi’s preemption argument, and her office is expected to pursue a civil enforcement action against the company in state court seeking restitution, disgorgement, civil penalties, and injunctive relief.

A Multi-State Legal Front

New York is just one of more than a dozen jurisdictions where Kalshi faces regulatory or legal challenges over its sports-related contracts. Last month, a Michigan judge issued a temporary restraining order barring Kalshi from offering sports-event contracts in that state. Kalshi has also sued Illinois over a new law imposing a 0.2% charge on digital-asset transactions, arguing the statute conflicts with CFTC oversight, while a Minnesota federal judge sided with state officials who contend prediction market platforms have exceeded what Congress intended when it established the CFTC’s regulatory framework in 1974.

In Kentucky, Attorney General Russell Coleman has sued both Kalshi and Polymarket, alleging the platforms offer illegal sports betting subject to state gambling law. Wisconsin sued Kalshi along with Robinhood, Coinbase, Polymarket, and Crypto.com in April on similar grounds, and Nevada regulators have pursued comparable actions against Kalshi, Coinbase, and Polymarket. The CFTC, for its part, has taken the opposite position at the federal level, suing New York in April to seek a declaratory judgment that federal law grants it exclusive authority over event contracts, and backing Kalshi in May before an Ohio federal appeals court.

With courts in different circuits reaching different conclusions on nearly identical preemption arguments, the Second Circuit appeal could become an important marker as the fight over prediction markets edges closer to a definitive resolution — one that may ultimately require the U.S. Supreme Court to settle. Bettors weighing whether prediction markets are even legal in the US should expect the uncertainty to persist for months to come.