Federal Court Ruling Allows New York to Regulate Kalshi

A Southern District of New York court just delivered a massive blow to Kalshi.

Judge Analisa Torres rejected Kalshi’s request for a temporary injunction to keep its sports prediction market platform live in the state. As a result, the operator will have to halt all sports transactions as its legal fight against New York rages on. 

While this guarantees a temporary win for the state, Kalshi immediately appealed the decision to get back online quickly in New York’s massive sports betting market.

“New York’s gambling laws are designed to protect consumers. Kalshi tried to ignore them. Yesterday, they lost in court,” Governor Kathy Hochul and AG Letitia James shared in a joint statement. “We will continue to hold all gambling platforms accountable to the law — and that includes prediction markets.”

Kalshi’s loss comes on the heels of another suffered in Michigan, which became the second state to win a temporary restraining order against the sports prediction industry. While both can be overturned, the rulings show momentum shifting against the controversial industry. 

The operator’s appeal will now head to the Second Circuit Court, where it is requesting an emergency injunction.  

Ruling Could Change Fight Over Prediction Markets

In her ruling, Judge Torres took a unique approach to the most significant question around sports prediction markets.

According to the Commodity Futures Trading Commission, sports markets are protected under the Commodity Exchange Act. It argues that the law classifies these transactions as “swaps” rather than gambling. It also gives the regulator sole authority over the industry, preventing states from enforcing their own gambling laws.

This issue has split judges across the US, but Torres refused to rule on it. Instead, she assumed (but did not assert) that sports contracts are swaps. However, she believes the CEA doesn’t preempt state gambling laws, meaning the CFTC can’t prevent their enforcement. 

This led her to reject the preliminary injunction and open a new legal path for other states to pursue in the ever-expanding fight against sports prediction markets.