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Kalshi has appealed to the U.S. Court of Appeals for the Second Circuit after a federal judge refused to block New York from enforcing its gambling laws against the prediction market operator. Judge Analisa Torres of the Southern District of New York denied Kalshi’s motion for a preliminary injunction in KalshiEX LLC v. Williams on Tuesday, and the company filed its notice of appeal the same day.
The ruling keeps New York’s enforcement position intact while the underlying case moves to the motion-to-dismiss stage. It also adds a heavyweight jurisdiction to the list of states where Kalshi’s core legal argument has failed.
Court rejects preemption argument
The dispute turns on whether Kalshi’s sports-event contracts are federally regulated derivatives under the Commodity Exchange Act (CEA) or gambling products subject to state law. Kalshi argues that its status as an exchange regulated by the Commodity Futures Trading Commission (CFTC) preempts state enforcement. The New York State Gaming Commission says the contracts violate state gambling statutes.
Torres sided with the state.
“The Court finds that New York gambling laws as applied to Kalshi’s sports-event contracts are not preempted by the CEA and Kalshi has not, therefore, made a clear or substantial showing that it is likely to succeed on the merits,” she wrote in the order.
The judge found that the CEA leaves room for states to regulate related aspects of swaps and other financial products traded on designated contract markets, and treated gambling regulation as a traditional state police power.
“Given that the power to regulate gambling is a traditional police power exercised by New York, the Court also declines to interpret the CEA’s grant of exclusive jurisdiction as leaving ‘no room for supplementary state legislation,'” Torres wrote.
She also noted that Kalshi retains the option of applying for a New York licence. “Although complying with New York gambling laws imposes an additional regulatory requirement on Kalshi, that requirement is not squarely contrary to federal law. Kalshi’s attempt, therefore, to avoid that requirement is unavailing,” the order states.
The opinion acknowledged that courts elsewhere have reached different conclusions on similar Kalshi motions, with some granting injunctions against state enforcement and others denying them.
A consequential loss in a key market
Sports and gaming law attorney Daniel Wallach described the outcome as significant for Kalshi’s other pending disputes.
“Major, major loss for Kalshi in the financial capital of the US, with likely knock-on effects in other cases,” he wrote on social media platform X, adding that Connecticut and other Southern District of New York lawsuits are the most likely to feel the ruling’s effects.
New York Attorney General Letitia James has rejected Kalshi’s preemption argument, and her office is expected to file a civil enforcement action against the company in state court, seeking restitution, disgorgement, civil penalties and injunctive relief.
The stakes for Kalshi in New York are considerable. The platform reported $1bn in Super Bowl LX trading volume in February and remains the largest prediction market operator by volume.
The multi-state legal front
New York is one of more than a dozen jurisdictions where Kalshi faces regulatory or legal challenges over its sports-related contracts. A Michigan judge issued a temporary restraining order in June barring the company from offering sports-event contracts in that state, and a Minnesota federal judge sided with state officials who argue prediction market platforms have gone beyond what Congress intended when it created the CFTC’s regulatory framework in 1974.
Kalshi has sued Illinois over a new law imposing a 0.2% charge on the value of digital-asset transactions or services provided to state customers, arguing the statute conflicts with CFTC oversight. In Kentucky, Attorney General Russell Coleman has filed suit against both Kalshi and Polymarket, alleging the platforms offer illegal sports betting subject to state gambling law. Wisconsin sued Kalshi alongside Robinhood, Coinbase, Polymarket and Crypto.com in April, while Nevada regulators have pursued comparable actions against Coinbase and secured a court restraining order against Polymarket.
The CFTC has taken the opposite position at federal level. The agency sued New York in April, seeking a declaratory judgment that federal law grants it exclusive authority over event contracts, and in May backed Kalshi in an Ohio federal appeals court after suing five states, Wisconsin, New York, Arizona, Connecticut and Illinois, to assert jurisdiction over prediction markets.
The question now moves to the Second Circuit, where Kalshi is expected to seek an injunction pending appeal. With federal courts already split on whether the CEA preempts state gambling law, the New York decision increases the likelihood that the dispute reaches the U.S. Supreme Court.
Source: U.S. District Court for the Southern District of New York
