Predictions marketplace Kalshi Inc. sued New York’s gaming commission, saying the state agency is overstepping its authority by attempting to regulate sports-betting operations that fall exclusively under federal jurisdiction.
In a lawsuit filed Monday in Manhattan US District Court, Kalshi said that it’s operating legally in New York under federal law. Kalshi accused state regulators of threatening the company over its so-called event contracts and asked a federal judge to immediately block the state from any enforcement action.
“Defendants have implicitly threatened Kalshi with criminal action and explicitly threatened Kalshi with civil penalties, including fines, unless it shuts down these contracts in New York immediately,” the company said in its complaint. The threat could harm not just the exchange but also its customers and business partners, the exchange said. Robinhood Markets Inc. is one of the brokers that partners with Kalshi to make its event contracts available.
Kalshi said regulation by the US Commodity Futures Trading Commission preempts state authorities because its contracts are structured as binary options. “One of Congress’ avowed goals in creating the CFTC was to avoid the ‘chaos’ that would result from subjecting exchanges to a patchwork of 51 different — and potentially conflicting — state laws,” Kalshi said.
A spokesperson for the gaming commission directed Bloomberg News to an Oct. 24 cease-and-desist letter it sent to Kalshi, saying the “letter speaks for itself” and that it had no further comment. The letter alleges Kalshi has been operating an unlicensed sports wagering operation in violation of state law.
The lawsuit adds to the mounting number of cases over the legality of predictions markets that offer trades on the outcome of sports that states have long viewed as their regulatory territory. Sports betting is still illegal in nearly a dozen states.
The New York-based exchange noted that federal courts in Nevada and New Jersey blocked regulators there from halting Kalshi and other companies’ offerings of sports contracts in their states.
The popularity of sports-themed event contracts exploded this year after CFTC-regulated prediction markets first made them available to trade just before the change in presidential administrations. Sports contracts trading volumes now dominate Kalshi’s trading volume and are driving a spate of acquisitions and partnerships. DraftKings Inc. purchased Railbird Technologies Inc., which only recently gained a CFTC license.
Top Graphic: The Kalshi logo arranged in New York, US, on Monday, Feb. 10, 2025. The Commodity Futures Trading Commission is asking Crypto.com and Kalshi Inc. to explain how their recently launched Super Bowl event contracts comply with derivatives regulations. Photographer: Gabby Jones/Bloomberg
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