Prediction market operator Kalshi has launched legal action against the New York State Gaming Commission (NYSGC), challenging the state’s authority to block its sports event contracts. The lawsuit, filed in the U.S. District Court for the Southern District of New York, argues that New York’s cease-and-desist order unlawfully intrudes on federal jurisdiction granted to the Commodity Futures Trading Commission (CFTC).

Kalshi Challenges State Authority

The legal dispute began when the NYSGC issued a cease-and-desist letter demanding that Kalshi immediately stop “advertising, promoting, administering, managing or otherwise making available sports wagering and/or a mobile sports wagering platform in New York.” The commission warned that continued activity could result in civil fines or even criminal penalties.

Kalshi swiftly filed suit (pdf), seeking a preliminary and permanent injunction to keep its sports event markets operational within the state. The company’s complaint asserts that its contracts are federally regulated derivatives products—not gambling—and therefore fall under the exclusive jurisdiction of the CFTC through the Commodity Exchange Act (CEA).

“This action challenges the State of New York’s intrusion into the federal government’s exclusive authority to regulate derivatives trading on exchanges overseen by the Commodity Futures Trading Commission,” Kalshi stated in its court filing. “The New York State Gaming Commission seeks to prevent (Kalshi) from offering event contracts for trading on its federally regulated exchange. It does so by threatening Kalshi with imminent civil penalties and fines for offering these contracts.”

Kalshi also invoked the U.S. Constitution’s Supremacy Clause, claiming that federal law preempts state intervention in markets explicitly reserved for federal oversight.

The NYSGC’s cease-and-desist order detailed multiple sports-related markets—covering professional leagues such as the NFL, NBA, MLB, and NCAA—that it deemed illegal. The commission defined Kalshi’s activity as “staking or risking something of value upon the outcome of a contest of chance or a future contingent event not under his control or influence.” Under New York Racing Law, that constitutes unlicensed sports wagering.

The regulator further stated that it “reserves all rights to investigate further and to levy and collect civil penalties” in connection with Kalshi’s prior and ongoing activities.

New York operates the nation’s most lucrative sports betting market, with eight licensed online sportsbooks generating $2.29 billion in handle in September alone. Regulators argue that allowing Kalshi’s event contracts to function without a state license undermines the integrity of this system.

Parallel Lawsuits Across the U.S.

As SBC Americas reports, Kalshi’s New York lawsuit mirrors similar disputes it has filed in Nevada, New Jersey, Maryland, and Ohio, each centered on whether its event-based contracts are legally considered financial derivatives or gambling. The company has already secured preliminary injunctions in Nevada and New Jersey, where courts agreed that “because Kalshi is a CFTC-designated DCM, it is subject to the CFTC’s exclusive jurisdiction and state law is field preempted.”

However, Kalshi’s request for the same relief was denied in Maryland, a decision the firm is currently appealing. Nevada’s regulators have also moved to dismiss their injunction ruling, with a court hearing scheduled for November 14.

The platform—headquartered in Manhattan—has also faced resistance from California tribes, who sued Kalshi and Robinhood earlier this year for allegedly offering “illegal sports betting” through event contracts.

Kalshi’s complaint comes amid mounting federal scrutiny of event contracts. Lawmakers including Senators Catherine Cortez Masto and John Curtis have criticized the CFTC for what they see as implicit approval of sports betting under the guise of derivatives trading. The senators argued that permitting such markets risks eroding decades of state and tribal control over gambling regulation.

Critics, including the American Gaming Association, have also raised concerns that Kalshi’s operations lack the consumer protections—such as responsible gaming tools and anti-money laundering controls—required of state-licensed sportsbooks.

Kalshi contends that halting its operations in New York would cause “immediate and irreparable harm,” noting that the state not only hosts its headquarters but represents one of its largest potential markets. The company claims that blocking access to its sports event contracts would force it to design “complex technological solutions” that could jeopardize compliance with federal trading requirements.

As more states challenge Kalshi’s business model, federal courts remain divided on jurisdiction. The outcomes of these cases could determine whether event-based prediction markets are ultimately treated as regulated financial instruments or state-controlled gambling products.