Kalshi’s New York loss widens a court split headed for the Supreme Court

A federal judge in Manhattan refused to shield Kalshi from New York’s gambling laws on Tuesday, deepening a split among US courts over who regulates prediction markets and pushing the fight closer to the Supreme Court.

The decision matters because federal appeals courts now disagree on the central legal question, and that kind of divergence is what tends to draw the justices in. Kalshi has already asked the Second Circuit to review the ruling. It was expected that the dispute could ultimately reach the Supreme Court, and each conflicting ruling makes that outcome harder to avoid.

What the judge decided

US District Judge Analisa Torres, who also presided over the SEC’s case against Ripple, denied Kalshi’s request for a preliminary injunction against the New York State Gaming Commission. The order landed in KalshiEX LLC v. Williams, filed July 7 in the Southern District of New York.

At issue is whether Kalshi’s sports-event contracts answer to a federal regulator or to state gambling law. Torres came down on the state’s side, at least for now. “New York gambling laws as applied to Kalshi’s sports-event contracts are not preempted by the CEA,” she wrote, referring to the Commodity Exchange Act, and she found the company had not shown “a clear or substantial showing that it is likely to succeed on the merits.”

Torres, in a 22-page opinion, applied a presumption against preemption, calling gambling and lottery rules “clearly a matter of predominantly state concern.” She also pointed out a practical off-ramp the company had ignored: “there is nothing preventing Kalshi from obtaining a license pursuant to New York law.” The judge separately dismissed the Gaming Commission from the case on Eleventh Amendment grounds, though the suit continues against its individual members, including Chair Brian O’Dwyer and Executive Director Robert Williams.

The question underneath: federal agency or state cop?

The whole fight turns on which authority outranks the other. Kalshi is registered with the Commodity Futures Trading Commission, and it argues that its event contracts are “swaps” traded on a federally licensed exchange, which would place them under the CFTC’s exclusive jurisdiction and out of reach of state gambling statutes.

The states see it differently. Regulating gambling has long sat within their police powers, and officials from New York to Nevada treat these sports contracts as unlicensed betting dressed up in financial language. When the CFTC sued New York in April to block enforcement, it told the court that “New York’s attempt to shut down federally regulated markets intrudes on the exclusive federal scheme Congress designed to oversee national swaps markets,” according to Courthouse News Service. The agency has taken that argument on the road, filing similar suits against Illinois, Connecticut, Arizona and Wisconsin.

Torres was not persuaded that Congress meant to sweep away state authority entirely. The Commodity Exchange Act, she noted, still lets states regulate certain issues tied to trading on designated contract markets, and she declined to read the law’s grant of exclusive federal jurisdiction as leaving “no room for supplementary state legislation.”

A map with no clear winner

The rulings now point in opposite directions. In April, the Third Circuit affirmed an injunction protecting Kalshi from New Jersey’s gambling laws, with a divided panel holding 2-1 that the company’s contracts qualify as swaps shielded by federal law, according to Courthouse News Service. Kalshi has also won in Tennessee.

The losses have piled up elsewhere. The Ninth Circuit sent Nevada and Washington cases back to state court in May, and Kalshi has lost in Maryland, Arizona and before the Sixth Circuit. Torres acknowledged the disagreement directly and noted her court was not bound by the Third Circuit’s contrary conclusion.

Daniel Wallach, a sports law attorney, called the New York ruling a “major, major loss for Kalshi in the financial capital of the U.S., with likely knock-on effects in other cases,” in a post on X.

The timing stings. Kalshi is reportedly chasing a $40 billion valuation and recently approached $10 billion in monthly trading volume, with sports contracts driving most of the activity. It remains the largest prediction market by volume, reaching $33 billion in June against a combined $13.95 billion for Polymarket.

What to watch next is the Second Circuit, where Kalshi’s appeal now sits. If that court breaks from the Third Circuit, the split widens further, and the case for Supreme Court review grows with it.

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