Kalshi filed a motion for preliminary injunction against the New York Gaming Commission on Monday, following a Friday cease-and-desist letter demanding that Kalshi stop offering event contracts in the Empire State. New York is the sixth state with which Kalshi is engaged in direct litigation.
JUST IN: Kalshi has filed an emergency motion for a temporary restraining order and preliminary injunction against the New York State Gaming Commission and asked for an immediate hearing. The case has been assigned to Judge Analisa Torres, who was appointed by Barack Obama. pic.twitter.com/t5bc3k44bE
— Daniel Wallach (@WALLACHLEGAL) October 27, 2025
As it has in its other cases, Kalshi argues that states have no right to regulate sports contracts, because they are traded on a federally regulated exchange overseen by the Commodity Futures Trading Commission (CFTC). New York disagrees, leaning on the argument that Kalshi’s sports contracts are functionally “gaming,” which is regulated by the New York Gaming Commission.
Kalshi in court battles with six states including New York
New York is home to the country’s largest regulated sports betting market. It shattered handle records in the first month that online sports betting went live and is also the state where Kalshi is based. The other states in litigation with Kalshi include:
- Nevada
- New Jersey
- Maryland
- Massachusetts
- Ohio
Kalshi has sued five of the six, the exception being Massachusetts, whose Attorney General filed suit against Kalshi back in September. The New Jersey and Maryland cases are set to be heard in appellate courts. Kalshi won its preliminary injunction in New Jersey but lost it in Maryland. So, it’s possible to have a split federal bench at the appellate level or a definitive resolution if the Supreme Court declines to hear the cases.
The cease-and-desist letters aren’t all the states are relying on to attempt to protect their sports betting industries from unwanted competition from the finance sector.
States warn sportsbook operators to stay out of prediction markets
On Thursday, Illinois became the latest state to warn its sportsbook operators that getting into prediction markets could impact brands’ “suitability” for “licensure.” The growing list includes Ohio, Arizona, Michigan and Nevada. Threatening sportsbook operators’ state-specific licenses puts some companies like DraftKings and FanDuel in difficult positions. Both sports betting giants have formed partnerships to secure their entry into prediction markets, and are facing regulatory scrutiny as a result.
Meanwhile, Illinois has been the target of growing criticism in regulated gaming circles, due to recent tax hikes that have effectively raised sports betting taxes for operators from a flat 15% to around 50% of gross gaming revenue in just two years. And one new proposal is looking to push that rate even higher inside Chicago city limits. Illinois has already implemented a 25-cent wager tax on the first $20 million in wagers, increasing to 50 cents per wager thereafter.
Policy moves like Illinois’ tax increases, and subsequent trickle-down costs to consumers, could encourage sportsbook operators to seek friendlier regulations at the federal level instead of the state-by-state framework governing legal online sports betting.
Prediction market momentum still hasn’t slowed
The prediction market industry’s conflicts with states haven’t blunted enthusiasm from investors. Kalshi and Polymarket are on track for valuations over $10 billion with further anticipated funding rounds.
Prediction markets can be used for entertainment, but they also offer hedging opportunities for niche risks. They also offer forecasts that can be used by non-traders.
Prediction markets have the added benefit of more favorable regulations compared to state-regulated online sportsbooks, which can translate into more favorable conditions for consumers. There’s only one licensing procedure, one regulator, and one tax rate. It’s the regulatory environment sportsbooks are understandably exploring ways to enter.
Regardless of ongoing conflicts between the states and federal exchanges, investors are looking to get in on the booming industry sooner rather than later, even before the state regulatory questions are definitively answered.
