New York has filed a lawsuit seeking $36 billion in damages against Kalshi, accusing the prediction market company of running an illegal sports betting operation under the guise of financial trading. The complaint, filed in state court, argues that Kalshi’s sports-related “event contracts” let New Yorkers wager on NFL games, college football and other sporting events without the licensing required under state gambling law.
The filing marks a significant escalation in New York’s ongoing dispute with Kalshi, which has continued to operate in the state despite earlier warnings from regulators. It follows a prior state action detailed in New York Sues Kalshi Over Illegal Gambling Claims, and now attaches a specific, multibillion-dollar damages figure tied to the volume of wagering activity the state says has flowed through the platform.
What the Lawsuit Alleges
At the center of the case is Kalshi’s line of sports-outcome contracts, which let users buy and sell positions on whether a team will win a given game, similar in structure to how traders bet on stock prices or economic indicators. New York’s complaint argues that despite the financial-market packaging, these contracts function exactly like a sports bet placed at a licensed sportsbook, just routed through an exchange regulated at the federal level rather than by the state.
The complaint contends that Kalshi’s football and other sports contracts are indistinguishable in substance from wagers taken by state-licensed sportsbooks, and that offering them to New York residents without a gaming license violates the state’s penal and gaming statutes.
New York’s gaming law requires sports betting operators to hold a state license and pay associated taxes and fees, a framework that has generated significant revenue for the state since mobile sports betting was legalized. The lawsuit argues Kalshi has sidestepped that entire system while offering functionally identical products to New York bettors, and it seeks damages calculated in part on the scale of wagering activity the state attributes to the platform.
Kalshi’s Defense and the Preemption Fight
Kalshi is registered with and regulated by the Commodity Futures Trading Commission (CFTC), a federal agency, and the company has consistently argued that its status as a CFTC-regulated exchange preempts state-level gambling restrictions. Under that theory, once a contract is approved for trading by federal commodities regulators, individual states cannot separately ban or restrict it under their own gambling codes.
That legal argument has produced a patchwork of outcomes across the country. Kalshi has won preliminary injunctions in several states that attempted to block its sports contracts, with courts siding with the company’s preemption argument, at least on a temporary basis. Other states have pressed ahead with cease-and-desist orders and lawsuits of their own, arguing that federal commodities oversight was never intended to displace state authority over gambling, which has historically been treated as a matter for states to regulate.
New York’s new filing puts the state squarely in the latter camp, betting that a state court will treat the substance of Kalshi’s contracts, rather than their federal registration, as the deciding factor.
A Pattern of State and Federal Scrutiny
The New York case adds to a broader wave of scrutiny facing prediction markets and adjacent platforms over the past year. Kalshi itself has faced other enforcement actions, including a set of penalties covered in Kalshi suspends, fines 3 congressional candidates in insider trading enforcement actions, which highlighted the company’s own efforts to police trading on its platform even as it fights off allegations that the platform itself is unlawful.
Regulators elsewhere have taken aim at other emerging betting-adjacent products as well. New York’s separate case against another trading platform, detailed in earlier coverage of the state’s gambling claims, underscores how aggressively state officials have moved to bring prediction markets under existing gambling oversight rather than treat them as a novel financial product exempt from those rules.
What Happens Next
The size of the damages request, $36 billion, signals how seriously New York is treating the volume of activity it says has occurred on Kalshi’s platform among state residents. The figure will likely be contested heavily in court, along with the core legal question of whether federal commodities regulation can override state gambling law.
For now, Kalshi continues to operate in New York and other states where similar legal challenges are pending. The outcome of the case could have implications well beyond sports contracts, potentially shaping how other prediction-market products covering elections, economic data and other real-world events are regulated going forward. A ruling is not expected imminently, and Kalshi has indicated it plans to contest the state’s claims, consistent with its position in similar disputes elsewhere.
The case is being closely watched by other state attorneys general and by the broader prediction-market industry, which has grown rapidly on the strength of the federal preemption argument now facing its most consequential test yet.
