Kalshi argued its sports contracts are financial products, not bets. A federal judge disagreed — and the ruling could ripple into cases in Coinbase, Gemini, and Connecticut. New York, Massachusetts, Arizona, and Nevada have all sided against Kalshi. New Jersey and Tennessee sided with it. The Supreme Court may eventually have to weigh in.
Kalshi’s suffered a defeat in its New York injunction case. The ruling is the latest and most consequential in a fragmented, state-by-state legal battle over whether prediction markets are regulated financial products or unlicensed gambling. US District Judge Analisa Torres ruled that Kalshi failed to show a likelihood of success on the merits regarding federal preemption under the Commodity Exchange Act, denying the prediction market’s motion for a preliminary injunction. “Gamble with our laws and you’re going to lose. Just ask Kalshi,” New York Governor Kathy Hochul wrote on social media. Kalshi sued New York officials in October 2025, claiming jurisdictional overreach after receiving a cease-and-desist letter from the state Gaming Commission accusing it of illegally offering unlicensed mobile sports wagering. Kalshi has already appealed to the Second Circuit. For now, Kalshi can continue operating in New York as the case proceeds.
What’s Happening & Why It Matters
Why State Gambling Law Wasn’t Preempted
Kalshi’s New York injunction defeat rests on specific statutory language Judge Torres identified in the Commodity Exchange Act (CEA) itself. Torres pointed to a provision in Section 2 of the CEA that undercuts Kalshi‘s preemption claims, noting “nothing contained in th[e] section shall supersede or limit the jurisdiction at any time conferred on other regulatory authorities under the laws of the United States or of any state.” That provision, Torres wrote, was evidence that Congress did not intend to regulate in a way that would exclude all state gambling laws from regulating transactions involving swaps.
Torres relied on the CEA’s special rule for event contracts, which allows the CFTC to prohibit contracts involving activity that is unlawful under state or federal law — including gaming. To Torres, that language cut against Kalshi‘s position because it showed Congress expected state law to hold relevancy. By contrast, Torres began from the premise that gambling regulation is a traditional area of state authority — meaning courts should not assume Congress displaced state law unless that was its clear purpose.
Kalshi Winning Some, Losing More
Kalshi’s New York injunction defeat deepens an already significant split across US courts. Kalshi has won major rulings in New Jersey and Tennessee, while courts in New York, Maryland, Arizona, Nevada, and the Sixth Circuit have sided with state regulators or rejected similar injunction requests. The decision is a major contrast to the Third Circuit’s New Jersey ruling, where Kalshi prevailed on federal preemption grounds.
The pattern grows larger. Michigan took an even more direct step, with Ingham County Circuit Judge Rosemarie Aquilina signing a 14-day temporary restraining order on 29 June requiring Kalshi to use geolocation to block sports-related contracts from reaching Michigan residents — carrying a $120,000 daily fine for non-compliance. Massachusetts secured a preliminary injunction earlier in the year blocking Kalshi from operating in the state entirely. That kind of conflict across circuits is exactly what could force a higher court to step in.
The 90% Problem
Kalshi’s New York injunction defeat carries commercial weight that extends far beyond a single state’s enforcement authority. While customers can wager on almost anything through Kalshi, roughly 90% of Kalshi’s trading volume goes toward bets on sports, while roughly half of Polymarket‘s trading is tied to sports. As TF covered in its Polymarket fake videos article, sports contracts are the core commercial engine driving both platforms’ growth — not a peripheral product line.
The concentration explains why New York’s ruling matters disproportionately. If sports-related event contracts specifically fall under state gambling jurisdiction rather than exclusive federal CFTC authority, the vast majority of Kalshi‘s actual trading volume is exposed to state-by-state licensing requirements — a fundamentally different and more expensive operating model than the single federal registration Kalshi has relied on to date.
Ripples: Coinbase, Connecticut, and the CFTC’s Own Case
Kalshi’s New York injunction defeat may not stay contained to Kalshi alone. Legal commentator Daniel Wallach flagged the likely domino effects directly: the ruling could see the CFTC lose its own separate case against New York’s Attorney General, Coinbase and Gemini civil enforcement cases remanded back to state court, a New York AG enforcement action against Kalshi proceeding, and both Kalshi and the CFTC losing preliminary injunction motions in Connecticut.
The CFTC sued several states directly in April, including New York and Wisconsin, asserting exclusive regulatory authority over prediction market platforms. That aggressive federal posture — the Trump administration has supported prediction market growth — faces a district court finding that directly undercuts its central legal theory. Donald Trump Jr. serves as an adviser for both Kalshi and Polymarket, and is a reported equity holder in Kalshi — adding a specific political dimension to how aggressively the federal government continues backing the industry’s preemption arguments going forward.
TF Summary: What’s Next
Kalshi has appealed Judge Torres’s ruling to the Second Circuit. The company can continue operating in New York while that appeal proceeds. The Michigan temporary restraining order runs through 13 July. There are more than a dozen states currently litigating against Kalshi and Polymarket simultaneously. Given the direct circuit split with the Third Circuit’s New Jersey ruling, the dispute increasingly appears headed toward eventual Supreme Court resolution.
MY FORECAST: Kalshi’s New York injunction defeat will not be the decisive ruling in the fight — but it accelerates the timeline toward Supreme Court intervention. With the Third Circuit and Southern District of New York producing directly conflicting outcomes on the same core preemption question, and more than a dozen additional state cases pending, the circuit split Wallach flagged is close to inevitable. By contrast, the near-term commercial consequence is on Kalshi and Polymarket‘s operating model specifically. Expect both platforms to accelerate diversification away from sports-heavy volume — as TF covered in its Meta Arena article, Meta’s entry into prediction markets with a points-based, non-sports-first model may prove strategically prescient given exactly the legal exposure. A platform not dependent on the 90% sports concentration Kalshi currently carries faces meaningfully less state-by-state gambling law risk.
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