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A federal judge’s ruling against Kalshi in New York is intensifying a nationwide fight over how prediction markets should be regulated, adding fresh weight to a debate state lawmakers have been having for months over where financial markets end and gambling laws begin.
US District Judge Analisa Torres denied Kalshi’s request for a preliminary injunction in KalshiEX LLC v. Williams on July 7, ruling that the Commodity Exchange Act does not preempt New York’s gambling law, according to PYMNTS. Kalshi appealed the decision to the 2nd US Circuit Court of Appeals the same day.
The ruling deepens a split with the 3rd US Circuit Court of Appeals, which sided with Kalshi in a similar New Jersey case, and legal observers say the dispute is increasingly likely to reach the US Supreme Court.
New York Gov. Kathy Hochul and Attorney General Letitia James said in a joint statement, “New York’s gambling laws are designed to protect consumers.” They added that the state will keep holding gambling platforms accountable, including prediction markets.
The ruling adds urgency to a discussion already underway among state lawmakers, examined in a recent episode of “State of Play,” a bipartisan video series produced by the National Conference of State Legislatures and A Starting Point.
How prediction markets work
Prediction markets let users buy and sell contracts tied to the outcome of future events. Most contracts pay a fixed amount, often $1, if a specified outcome occurs, and prices shift as traders react to new information.
Because platforms such as Kalshi operate under Commodity Futures Trading Commission oversight, they have expanded nationwide without state gambling licenses, increasingly into sports, elections and other popular events.
Lawmakers remain split on prediction market oversight
Even as the CFTC asserts oversight, lawmakers say the state’s role remains unresolved. Tennessee state Sen. Ferrell Haile, a Republican, cited three concerns: conflicts of interest, misuse of insider information and confusion over which regulator has authority.
He said the answer hinges on classification: If event contracts are treated as futures, federal regulators keep more control; if they’re treated as gambling, states should have a stronger voice.
Minnesota state Sen. John Marty, a Democrat, argues platforms are exploiting a regulatory gap to sidestep state gambling law, saying contracts tied to sporting events function the same way traditional sports betting does.
He’s also wary of political contracts, arguing such products should be barred entirely because insiders with privileged information or influence over outcomes can profit from them.
New York loss pushes Kalshi toward Supreme Court fight
The CFTC maintains that event contracts remain subject to federal anti-fraud, anti-manipulation and market-surveillance rules.
In February, the agency highlighted two Kalshi disciplinary cases, one involving misuse of nonpublic information and another involving fraud. One participant received a penalty of more than $20,000 and a two-year suspension from the platform.
Federal rules also bar contracts tied to terrorism, assassination, war and other events deemed contrary to the public interest.
Even so, states argue federal oversight doesn’t erase their authority to enforce gambling law, and legal fights are multiplying beyond New York. Nevada temporarily blocked Kalshi from operating in the state, Arizona pursued criminal charges before a federal judge intervened, and New Jersey’s fight over the 3rd Circuit’s pro-Kalshi ruling could reach the Supreme Court as soon as this year.
The stakes are rising alongside trading volume: Kalshi reported roughly $31 billion in trades in June alone, driven largely by wagers tied to the 2026 FIFA World Cup, according to multiple industry reports.
Consumer protections could extend to trading
Haile pointed to safeguards already used in state-regulated sports betting, including minimum age requirements, responsible-gambling programs and self-exclusion tools, as models that could apply if prediction markets are classified as gambling.
According to an NCSL post, Marty agreed stronger protections are needed but said he remains skeptical of the broader sports betting industry. “I’m not opposed to people gambling,” he said. “I’m opposed to the fact that these are predatory industries”.
With courts divided and legislators still debating jurisdiction, whether prediction markets are financial innovation or a new form of betting is likely to stay unresolved for months, if not longer.
