A federal judge has dismissed Kalshi’s bid to stop New York from enforcing its gaming laws against the prediction market platform, and the company has promptly escalated the matter to a higher court.

On Tuesday, Southern District of New York Judge Analisa Torres denied Kalshi’s request for a preliminary injunction in the case of KalshiEX LLC v. Williams. Kalshi has filed a notice of appeal the same day, shifting the litigation to the U.S. Court of Appeals for the Second Circuit.

The Central Legal Issue

The crux of the matter is whether Kalshi’s sports-event contracts should be classified as federally regulated derivatives per the Commodity Exchange Act (CEA) or fall under state gambling regulations. The New York State Gaming Commission asserts that these contracts breach state laws, while Kalshi argues that its designation as a CFTC-regulated exchange supersedes local governance.

Judge Torres sided with the state. “The Court concludes that New York gambling regulations, as they relate to Kalshi’s sports-event contracts, are not overridden by the CEA, and Kalshi has not demonstrated a substantial likelihood of succeeding on the merits,” she noted in her ruling.

The judge emphasized that the CEA allows states to regulate aspects of swaps and other financial products traded on recognized contract markets.

“Given that gambling regulation is a traditional police power exercised by New York, the Court will not interpret the CEA’s exclusive jurisdiction grant to imply ‘no room for supplementary state legislation,’” wrote Torres.

She further noted that Kalshi has the option to apply for a New York license. “While adhering to New York gambling regulations imposes an additional regulatory obligation on Kalshi, it is not in direct conflict with federal law. Therefore, Kalshi’s attempt to circumvent this requirement fails,” the order states.

The opinion acknowledged that other courts have reached varying conclusions regarding similar Kalshi requests, with some granting injunctions against state enforcement while others have denied them.

Sports and gaming law attorney Daniel Wallach characterized the ruling as significant for Kalshi’s other ongoing legal challenges.

On X, he remarked: “A major setback for Kalshi in the financial hub of the U.S., likely to have ripple effects in other cases.” He also indicated that lawsuits in Connecticut and other SDNY cases could be especially impacted by this decision.

New York Attorney General Letitia James has countered Kalshi’s preemption claims and intends to initiate a civil enforcement action against the firm in state court, aiming for restitution, disgorgement, civil penalties, and injunctive relief.

A Nationwide Legal Battle

New York is one of numerous jurisdictions where Kalshi is contending with regulatory or legal disputes over its sports-related contracts. Recently, a judge in Michigan issued a temporary restraining order prohibiting Kalshi from offering sports-event contracts in that state.

Kalshi has also taken legal action against Illinois regarding a new law mandating a 0.2% fee on digital asset transactions or services offered to state customers, claiming the statute conflicts with CFTC authority.

A federal judge in Minnesota ruled in favor of state officials who argue that prediction market platforms have exceeded the scope of 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, claiming that the platforms are engaged in illegal sports betting governed by state law rather than federal financial regulations.

Wisconsin also filed suit against Kalshi alongside Robinhood, Coinbase, Polymarket, and Crypto.com in April, alleging that these firms facilitated illegal sports betting through their event-contract offerings. Nevada regulators have pursued similar actions against Kalshi, Coinbase, and Polymarket.

At the federal level, the CFTC has taken an opposing stance. In April, the agency filed a lawsuit against New York, seeking a declaratory judgment affirming its exclusive authority over event contracts.

In May, the CFTC supported Kalshi in an Ohio federal appeals court after suing five states — Wisconsin, New York, Arizona, Connecticut, and Illinois — to affirm its jurisdiction over prediction markets.