Kalshi’s Federal Lawsuit Challenges CFTC Authority Amid Conflict With New York Sports Betting Prohibition

Kalshi, a prediction market platform registered with the CFTC, has initiated a federal lawsuit against the New York State Gaming Commission in an effort to halt the enforcement of the state's prohibition on its sports betting contracts. The company contends that the Commodity Futures Trading Commission (CFTC) has sole authority over derivatives trading under the Commodity Exchange Act, making New York's regulatory measures unconstitutional under the Supremacy Clause, as reported by a

. The complaint, submitted on October 27, 2025, requests urgent judicial intervention to stop the state from levying civil or criminal penalties for facilitating event contracts based on sports results, according to a .

The conflict arises from a cease-and-desist order issued by New York on October 24, which accused Kalshi of running an unauthorized mobile sports betting service. State officials classified Kalshi's offerings as "sports wagering" under local statutes, requiring the company to adhere to the same licensing, tax, and regulatory standards as conventional sportsbooks, according to

. In response, Kalshi maintains that its business is federally authorized, having self-certified its sports event contracts with the CFTC in January 2025, as stated in a . The platform asserts that the CFTC's 2020 recognition of Kalshi as a Designated Contract Market (DCM) affirms its position as a federally regulated derivatives exchange, thereby exempting it from state oversight, according to .

Legal analysts observe that Kalshi's tactic of initiating proceedings in federal court has proven advantageous in previous disputes. Daniel Wallach, an expert in gaming law, pointed out that this legal strategy shifts the focus to federal preemption rather than the contracts' legality. In comparable cases in Nevada and New Jersey, courts have issued preliminary injunctions in Kalshi's favor, determining that the CFTC's exclusive regulatory authority over swaps and futures overrides state laws, as referenced in a

. Nevertheless, results have varied: a Maryland judge temporarily ordered Kalshi to suspend its operations, and a recent Nevada decision against competitor Crypto.com highlighted judicial examination of whether sports prediction markets are classified as swaps under federal statutes, as reported by .

The implications are significant for Kalshi, which projects that it could lose more than $50 million in annual revenue in New York if forced to discontinue its services. The company is also facing increasing regulatory scrutiny, with states such as Illinois and Arizona likely to adopt similar measures as New York. Wallach suggests that recent court decisions favoring state regulators, like Nevada's dismissal of Crypto.com's case, may encourage additional states to challenge prediction markets, as noted by Decrypt.

The New York gaming commission has yet to issue a public statement regarding the lawsuit but has reiterated its mandate to uphold state gambling regulations. The commission's cease-and-desist notice warned of "imminent civil penalties and fines" should Kalshi persist in offering sports event contracts, which the commission sees as undermining the state's regulated sports betting sector, according to Sports Betting Dime.

The resolution of this legal battle could influence the future relationship between state and federal authorities in the fast-changing prediction markets industry. With more than 1.2 million event contracts traded each year on CFTC-supervised platforms, the CFTC has established itself as a central authority in preventing inconsistent regulatory approaches, as highlighted by Coinotag.