New York Prediction Markets: The State That Is Trying to Bankrupt Kalshi

No — not as New York sees it, and the state is actively fighting to keep it that way. As of August 2, 2026, the New York State Gaming Commission, the attorney general, and the governor all take the position that CFTC-registered event contracts on sports and other outcomes are illegal, unlicensed gambling under state law. A federal judge in Manhattan has now sided with the state three separate times, refusing every request Kalshi made to shield itself from enforcement. And the attorney general has filed a state-court petition designed not merely to stop the activity but to strip out the profits and stack penalties on top.

The legal engine behind that position is old and blunt. New York’s Constitution flatly bans most gambling, and the Penal Law defines the offense broadly enough to swallow almost any pay-to-play wager on an uncontrolled outcome. Kalshi’s answer is that its contracts are federal financial instruments that no state gambling regulator may touch. New York’s courts have not bought it. Until a higher court says otherwise — or the Supreme Court settles the underlying question nationally — the operative reality for a New Yorker is that these products sit on the wrong side of state law and carry none of the consumer protections a licensed New York gambling product must provide.

Rewind to autumn 2025. Kalshi and a handful of other CFTC-registered exchanges had spent the year rolling sports event contracts out nationwide, treating a federal derivatives license as a passport around state gambling rules. New York noticed. In October 2025, the New York State Gaming Commission sent Kalshi a cease-and-desist letter ordering it to stop offering what the commission viewed as unlicensed sports wagering to New Yorkers. That letter is the origin point of everything that followed.

Kalshi’s standard response to a hostile state is to sue first, and it did. Rather than wait to be prosecuted, the company took the Gaming Commission to federal court, betting that a judge would agree the Commodity Exchange Act wipes out state gambling law for anything traded on a federally designated contract market. That gambit had already paid off elsewhere — a divided federal appeals court in Philadelphia handed the company a preemption win against New Jersey in April 2026. New York was supposed to be another domino.

It did not fall. While Kalshi’s federal suit ground forward, Attorney General James was building a second, parallel attack under state law — and she had already tested it. In April 2026, months before touching Kalshi, James filed state-court petitions against Coinbase Financial Markets and against Gemini’s Titan event-contract product, alleging both ran illegal gambling operations in New York without a license. Those petitions were the dress rehearsal. When the federal court began ruling against Kalshi in July, the attorney general moved the same theory onto the biggest target in the sector.

The result is a genuine two-front war, and the two fronts are fought under different bodies of law. In federal court, the question is whether a federal financial statute overrides New York’s authority at all. In state court, the question assumes New York’s authority and asks how much Kalshi owes for having ignored it. Kalshi has to win the federal fight to make the state fight go away. So far it has lost the federal fight repeatedly, which is why the July 31 petition landed with so much force.

To get at why New York’s courts keep siding with the state, you have to read the two legal instruments doing the work. Neither was written with prediction markets in mind. Both are broad enough to cover them anyway.

Kalshi’s counter is that none of this applies because federal law got there first. Its contracts, the company argues, are “swaps” traded on a CFTC-designated contract market, and Congress gave the CFTC exclusive jurisdiction over that trading. If that is right, New York’s Penal Law is beside the point — a state cannot criminalize a federally regulated financial product. The entire New York fight is a collision between that federal-supremacy argument and the plain words of Section 225.00. In this state, the words have been winning.

Kalshi’s federal suit drew Judge Analisa Torres of the Southern District of New York — a name crypto watchers will recognize, since she is the same judge who presided over the SEC’s long-running case against Ripple. Her handling of Kalshi has been anything but favorable to the company.

On July 7, 2026, Torres denied Kalshi’s motion for a preliminary injunction in the case docketed as KalshiEX LLC v. Williams, the caption reflecting the Gaming Commission’s executive director as the named defendant. She worked through every preemption theory Kalshi offered — express, field, and conflict — and rejected all three, holding that New York’s gambling laws as applied to Kalshi’s sports event contracts are not overridden by the Commodity Exchange Act. Kalshi, she found, had not shown a likelihood of winning on the merits, the threshold a plaintiff must clear to freeze enforcement while a case proceeds.

Kalshi appealed to the Second Circuit within days and asked Torres to pause enforcement in the meantime. She said no again. On July 27, 2026, she denied an injunction pending appeal, a request that demands an even stronger showing than the motion she had already rejected. Torres wrote that the company had failed on every element — not likely to succeed on appeal, no irreparable harm shown, and the balance of equities and the public interest both favoring the state. Two losses, three weeks apart, from the same judge.

The company then went over Torres’s head, asking the Second Circuit for emergency relief. On July 29, 2026, Circuit Judge Myrna Perez, acting alone, denied Kalshi a temporary administrative stay and referred the matter to a three-judge panel, which has not set a hearing as of this writing. The practical upshot is stark: no court order currently shields Kalshi from New York enforcement while its appeal winds through the Second Circuit.

That confidence is grounded in the fact that a neighboring federal circuit reached the opposite conclusion, sharpening the stakes rather than settling them. The Philadelphia-based Third Circuit ruled 2-1 in April 2026 that sports event contracts are swaps and that the Commodity Exchange Act preempts New Jersey’s gambling laws. New York and New Jersey now sit on opposite sides of the identical federal question, a split that is precisely the kind of conflict the Supreme Court exists to resolve.

The July 31, 2026 filing is where New York stopped playing defense. James filed a verified petition in New York County Supreme Court in Manhattan — captioned People of the State of New York v. KalshiEX LLC — alleging that Kalshi runs an illegal, unlicensed gambling operation from a company that keeps a New York headquarters. The petition sweeps in contracts on sports, elections, and cultural events, with reporting noting markets ranging from the Super Bowl to the reality show “Big Brother,” and argues they are wagers on outcomes the customer cannot control — the textbook Section 225.00 offense.

The relief James asked for is what turns this from an enforcement action into an existential threat: a court order barring Kalshi from operating, forfeiture and disgorgement of all gains the company made in New York, restitution to consumers, and — the piece that generates the headline number — a civil penalty equal to three times those gains, plus a reported $100,000 for each unlawful offer of sports or mobile sports wagering. Multiply Kalshi’s enormous New York sports volume by a treble-damages multiplier and add a five-figure penalty per offer, and the arithmetic runs into the billions fast. Outlets including Reason, Al Jazeera, and multiple crypto and sports-business trades reported the total exposure could reach at least thirty-six billion dollars, described as a figure before a full accounting of Kalshi’s profits. That would rank among the largest financial demands any state has ever aimed at a fintech company.

James framed the case in one sentence the state has repeated everywhere since: “No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple.” Hochul added the policy rationale, saying Kalshi “has chosen to ignore New York’s gaming laws, which exist to protect consumers, prevent problematic gambling, deliver funding for critical public services, and ensure that every company plays by the same rules.” Kalshi, for its part, has publicly dismissed the New York campaign as political theater and insists its federal registration puts it beyond state reach.

Whether or not the thirty-six-billion-dollar figure ever survives contact with a judge, the structure of the demand tells you the strategy. New York is not simply asking Kalshi to leave. It is trying to make having operated here in the first place financially catastrophic — a deterrent aimed at every other CFTC exchange watching to see what New York does next.

Why 18 Versus 21 Is the Sharpest Blade

Buried in the legal theory is the allegation that resonates hardest with the public, and it is about age. When New York launched mobile sports betting in January 2022, it set the minimum age at 21, matching the state’s other regulated gambling products. Kalshi lets users trade at 18. The attorney general’s argument follows a straight line: if these contracts are functionally sports bets, then New York’s 21-and-over rule governs them, and a platform serving 18-to-20-year-olds is putting gambling in front of people the state has decided are too young for it.

The state’s press materials lean into that gap explicitly, warning that Kalshi’s market “exposes New Yorkers — including those under the legal gambling age of 21 — to serious personal and financial risk.” It is a rhetorically powerful point because it does not require a court to first resolve the abstract preemption question. It simply asks whether a New York teenager should be able to do on one app what New York law forbids on every other. The same 18-versus-21 gap is what the pending ORACLE Act is written to close by statute.

Washington did not watch quietly. Ahead of and around James’s July 31 filing, the Commodity Futures Trading Commission moved in federal court seeking to bar New York from bringing or continuing enforcement actions against Kalshi and other CFTC-registered companies — a temporary restraining order aimed at freezing the state’s own state-court campaign. Legal observers read it as a jurisdiction race: the CFTC wanted a federal court to declare its authority controlling before a New York state judge could rule the other way.

This is consistent with the agency’s national posture. CFTC leadership signaled in February 2026 that it would sue any state regulator interfering with a federally licensed operator, and it has followed through, taking action against roughly nine states in this litigation wave, New York among them. The agency dropped its earlier appeal in the Kalshi election-contracts matter, withdrew a 2024 proposed rule, and has generally lined up behind the platforms it licenses. New York is now the marquee arena for the resulting collision — a federal regulator asserting exclusive control over event contracts against a state insisting they are nothing but unlicensed bets. You can follow the agency’s own filings and statements at cftc.gov.

Kalshi is the headline defendant, but it is not the only one. Back in April 2026, James filed separate state-court petitions against Coinbase Financial Markets and against Gemini’s Titan event-contract product, alleging the same illegal-gambling theory against those crypto-linked distributors months before she turned to Kalshi. Those cases are the reason the Kalshi petition did not come out of nowhere — the attorney general had already road-tested the argument against two smaller targets and gotten it into court.

For a resident, the practical read-through is that New York’s enforcement is not aimed at one company. It is a campaign against the entire category as offered here, with different operators sitting at different stages of the same pipeline. Coinbase’s own regulatory picture is covered in our Coinbase review; the underlying event-contract exchanges are covered across our prediction markets hub.

Litigation is New York’s fast lane, but the state is also trying to lock the outcome in through legislation so it never has to argue Section 225.00’s reach again. The vehicle is the ORACLE Act — the acronym stands for Oversight and Regulation of Activity for Contracts Linked to Events — carried as Senate Bill S9414 and Assembly companion A9251A, sponsored by state Senator Joseph Addabbo, who chairs the Senate’s Racing, Gaming and Wagering Committee.

On August 2, 2026, the ORACLE Act has not been enacted. Session timing matters: a bill that does not pass before the legislature adjourns generally has to be carried into the next session, so its near-term fate is uncertain. Notably, if the courts hand New York a clean win, the state may not need the statute at all — but the bill is insurance, and it hands prosecutors a bright-line rule instead of an interpretive fight over a 1960s-era definition.

It is a fair question for anyone who already holds a position, and the honest answer is that there is no New York guarantee. When state pressure has forced operators out elsewhere in this litigation wave, companies have generally allowed existing users to close open positions and withdraw their balances rather than seizing funds — it is bad business and bad optics to trap customer money. But that has been a matter of operator practice and, in some cases, the terms of a court order, not a protection New York law provides.

The gap matters because a licensed New York sportsbook operates under Gaming Commission rules that dictate how customer funds are handled and segregated, with the state standing behind the framework. A CFTC event contract carries the federal exchange’s own protections rather than New York’s, and if enforcement here escalates to a hard shutdown, your recourse runs through that federal structure and the company’s terms of service — not through a New York regulator you can call.

Every New York development sits under a federal rulemaking that could reshape the whole board. The CFTC has proposed amending the rule that governs which event contracts an exchange may list, moving toward contract-by-contract review under the Commodity Exchange Act. Reporting on the draft indicates most sports event contracts would remain permissible, while contracts on things like individual player injuries, referee decisions, military conflicts, assassinations, and terrorist acts would be off-limits. The rule had not been finalized as of August 2, 2026.

Why does a federal rule matter to a New Yorker? Because it goes to the core of the state’s argument. If the CFTC formalizes that sports event contracts are legitimate products under its exclusive authority, it strengthens Kalshi’s preemption case against New York. If, on the other hand, the final rule is read to treat sports outcomes as “gaming,” that could cut the other way and hand New York fresh ammunition. Congressional analysts have flagged that possibility explicitly. Either way, a rule written in Washington could do more to decide New York’s fight than any single ruling from a New York judge — which is exactly why the state is racing to establish its position in court before the federal picture settles.

It helps to understand the mechanics, because the mechanics are what New York’s Section 225.00 argument feeds on. A prediction market lists a yes-or-no contract on a future event — will a given team win Sunday, will a nominee be confirmed, will an economic figure land above a threshold. Each contract settles at either one dollar (the event happened) or zero (it did not). Prices float between one cent and ninety-nine cents and read like probabilities: a contract trading at 62 cents implies the market thinks there is roughly a 62 percent chance the event occurs.

Unlike a sportsbook, where you bet against the house and the operator sets the line, a true prediction exchange matches you against other traders through an order book. You can buy the “yes” side, or you can buy “no,” and you can sell your position before the event resolves if the price moves your way. The exchange takes a fee rather than booking your loss as its win. That peer-to-peer structure is the heart of the platforms’ legal argument — they say it makes their product a financial exchange, not a bookmaker.

New York’s rebuttal is that the plumbing does not change the substance. Whether you are matched against the house or against a stranger, you are staking money on a future contingent event you cannot control and collecting if it breaks your way — which is the exact conduct Section 225.00 defines as gambling. Judge Torres, at least on the preliminary record, found that framing persuasive. For a New York resident, the takeaway is that the order-book design platforms tout as their shield has not shielded them in this state’s courts.

Two practical realities sit underneath the legal fight, and both cut against New Yorkers who trade these products anyway.

The tax picture is genuinely unsettled, and nothing here is tax advice — confirm your own situation with a professional. There is no 1099-B from Kalshi and no IRS ruling to lean on, so whether event-contract winnings are gambling income, capital gains or Section 1256 futures income stays unsettled. Different platforms may report differently, and a brokerage-distributed contract can be handled unlike an exchange-native one. In plain terms, a New York trader carries the burden of tracking and characterizing gains without the clean paperwork a licensed sportsbook or brokerage would hand over, and without settled guidance on how the state and federal tax authorities will treat them.

The protection deficit is the sharper problem, and it is central to New York’s own case. CFTC-regulated exchanges sit entirely outside New York’s gambling-protection framework. There is no state self-exclusion registry that covers them, no state complaint desk to call, and no state-supervised dispute resolution — all of which a licensed New York mobile sportsbook is required to provide. Layer on the 18-and-older minimum where state-licensed betting demands 21, and you have the precise vulnerability James is prosecuting. The one meaningful exception in the sector is FanDuel Predicts, which voluntarily ships deposit limits, self-exclusion, and access to behavioral-health support — but that structure is the exception among CFTC exchanges, not the rule, and FanDuel’s sports product is not marketed into New York anyway.

Here is the irony at the center of the New York story: the state has a fully legal way to bet on games, and that is exactly why it treats unlicensed event contracts as a threat rather than a novelty. New York launched mobile sports betting in January 2022 and built it into one of the biggest regulated markets in the nation, taxed at 51 percent of gross gaming revenue — among the highest rates anywhere. Every dollar Kalshi captures from a New York sports outcome is, from the state’s perspective, a dollar routed around that tax base and around the protections that come attached to it.

The differences that matter to a resident are concrete. A licensed New York sportsbook verifies you are 21, enrolls you in state self-exclusion tools if you ask, answers to the Gaming Commission, and pays state taxes that fund public programs. A CFTC event contract offers none of that in New York — no state license, no state age floor, no state complaint process, and, right now, no court order confirming it is even allowed to operate here. If your actual goal is to wager on sports, the legal, protected route is the licensed market. Compare operators on our New York online sportsbooks page, see which states have live markets on the states with online sportsbooks index, or start broad at the online sportsbooks hub.

New York is the most financially aggressive state in this fight, but it is not alone, and seeing the map explains why the outcome here is not guaranteed to hold.

Directly next door, New Jersey went the other way: the Third Circuit ruled in April 2026 that the Commodity Exchange Act preempts New Jersey’s gambling laws for sports event contracts, a decision that gave the platforms their biggest win to date and that New Jersey may take to the Supreme Court. Nevada has been every bit as combative as New York on the enforcement side, winning a state-court order against Kalshi and pursuing contempt for alleged failures to geofence, though it fought on gaming-control grounds rather than a headline damages number. Massachusetts pushed a Kalshi dispute all the way to its Supreme Judicial Court. Arizona went furthest of all on the merits, where a federal judge in May 2026 entered a permanent injunction — but for the platforms, holding that federal law preempts the state as applied to CFTC-regulated markets, the mirror image of New York’s result. Minnesota passed the first outright statutory ban, only to have a federal judge block it in July 2026.

That patchwork is the real story. Two neighboring states, New York and New Jersey, have reached opposite conclusions on the identical federal question. Arizona and New York, both prosecuting hard, got opposite rulings. A resident trying to make sense of it should hold two facts together: New York’s courts have been decisively hostile so far, and the national question underneath is genuinely unsettled and heading upward. What binds New York today could be undone by a higher court tomorrow — or hardened into permanence. For the full state-by-state landscape, browse our state index, and for how this fits the national legality debate, see our overview of whether online gambling is legal across the country.

This is a fast-moving file, and several pending events could shift it in either direction. Watch these:

No state has swung harder at prediction markets than New York, and no operator is more exposed here than Kalshi. Between a federal judge who has ruled against the company three times, a state petition engineered to reach thirty-six billion dollars, a ban bill waiting in the wings, and a CFTC racing to defend its turf, the Empire State is the marquee arena for the national fight. For a resident, the practical answer is that these products sit on the wrong side of New York law today, carry none of the state’s consumer protections, and could be forced out with little notice. If your goal is to bet on sports, the licensed, protected route is New York’s regulated mobile sportsbook market.

• New York Attorney General, “Governor Hochul and Attorney General James Announce New York Has Sued Kalshi for Running Illegal Gambling Operation” (July 31, 2026), ag.ny.gov.
• New York State Senate, S9414 (2025-2026 session), nysenate.gov; Assembly companion A9251A.
• New York Penal Law Section 225.00, gambling definitions, nysenate.gov; New York Constitution Article I, Section 9, nysenate.gov.
• Commodity Futures Trading Commission, filings and statements, cftc.gov; federal docket in KalshiEX LLC v. Williams (SDNY) traceable via CourtListener.
• Reporting on the SDNY rulings and Second Circuit referral: Gambling Insider, Covers, PlayUSA, CCN, crypto.news, PYMNTS (July 2026).
• Reporting on the state petition, the $36 billion figure, and the CFTC countermove: Reason, Al Jazeera, DeFi Rate, CoinGape, CasinoBeats, Crypto Briefing, TechTimes (July 31, 2026).
• Internal Prediction Markets Legal Brief, current to August 1, 2026.

This page is informational and not legal, financial, or tax advice. Prediction-market law is changing weekly; confirm the current status of any case, bill, statute, or operator before acting. Last verified August 2, 2026.