Kalshi Sues New York Regulator Over Move To Block Its Sports Betting Contracts

Prediction market Kalshi has filed a federal lawsuit against the New York State Gaming Commission after the regulator ordered it to stop offering contracts tied to sports outcomes.

In a complaint filed in a Manhattan federal court, Kalshi said the state regulator had no authority over its operations because it is a registered exchange with the US Commodity Futures Trading Commission (CFTC).

The firm argued that its event contracts, including those linked to sports results, are federally regulated derivatives rather than wagers.

The lawsuit followed a cease-and-desist letter from the New York regulator on Friday accusing Kalshi of facilitating unlicensed sports wagering and threatening it with “imminent civil penalties and fines.”

It requested a preliminary and permanent injunction from the court, as well as a court declaration stating that the New York regulator can’t regulate the platform under the Constitution.

Kalshi Says State’s Action Would Expose It To ‘Patchwork Of Regulations’

It also said the state’s actions threaten to subject Kalshi to the patchwork of state regulation that Congress created the CFTC to prevent.

Kalshi is currently registered as a designated contract market (DCM) with the CFTC. This gives the platform the federal right to list and clear derivatives that are tied to real-world events, which may include sports outcomes, the company said in its filing.

Kalshi offers multiple sports-events contracts, which allow users to bet on whether a team will win or advance in a tournament. Users can also bet on other spots outcomes on the platform. 

The company had self-certified those sports contracts with the CFTC earlier this year. 

Kalshi Says It’s Only Subject To The CFTC’s Jurisdiction

Kalshi argued that it is “subject to the CFTC’s exclusive jurisdiction” under the federal Commodity Exchange Act and said the state’s actions could lead to “immediate and irreparable harm.”

Kalshi added that it’s trapped between a rock and a hard place. If it chooses not to comply, it faces civil and criminal liability, but if it does it will “incur substantial economic and reputational harm.” 

Kalshi sports betting (Source: Kalshi)

Not Kalshi’s First Legal Battle With State Regulators

Kalshi has also sued state gambling regulators in Nevada, Ohio, Maryland, and New Jersey over similar circumstances. Kalshi is also defending itself against allegations made by Massachusetts for allegedly violating its sport betting laws.

Kalshi has won preliminary injunctions in the New Jersey and Nevada federal courts, victories it said helped prevent “similar state overreach.” 

But a Nevada federal judge said in April that Kalshi would likely not suffer harm if the court did not block the state’s gaming regulator. A similar conclusion was reached by a New Jersey federal judge a month later, while a federal court in Maryland denied Kalshi’s request to block the state’s regulator in August.

Other platforms that offer event contracts, such as Crypto.com and Robinhood Markets, have also filed legal actions to defend themselves from state regulators.