Kalshi Escalates Prediction Markets Fight to Second Circuit After New York Setback

Kalshi has taken its legal dispute over sports-related prediction contracts to the US Court of Appeals for the Second Circuit, filing a same-day notice after a federal judge in New York refused to shield the platform from state gambling enforcement. The move deepens a jurisdictional standoff over whether such contracts fall under federal derivatives law or state gambling statutes, a question now dividing courts across the United States.

Judge Analisa Torres of the US District Court for the Southern District of New York had denied Kalshi’s request for a preliminary injunction against officials at the New York State Gaming Commission earlier on Tuesday. The court concluded that New York’s gambling laws, as applied to Kalshi’s sports-event contracts, were not pre-empted by the US Commodity Exchange Act, and found that Kalshi had failed to make a “clear or substantial showing” that it was likely to succeed on the merits, according to Cointelegraph.

A fractured legal landscape

The New York ruling is notable not only for its outcome but for what it confirms about the state of litigation nationally. The order itself acknowledged that other jurisdictions have reached conflicting conclusions on near-identical requests from Kalshi, with some courts granting injunctions against state enforcement and others rejecting them outright.

Daniel Wallach, a Florida-based lawyer whose practice focuses on sports wagering and gaming law, described the decision as a “Major loss for Kalshi in the nation’s financial capital, with likely knock-on effects in other cases (esp. Connecticut and other SDNY lawsuits).”

CFTC backing and a widening multi-state front

The New York case forms part of a broader confrontation between prediction market operators and state regulators. In May, the Commodity Futures Trading Commission sided with Kalshi in a separate appeal before an Ohio federal appeals court, having already sued five states — Wisconsin, New York, Arizona, Connecticut and Illinois — in an effort to assert federal jurisdiction over prediction markets.

Kalshi has itself gone on the offensive elsewhere. On 25 June, it sued Illinois officials over a state law it says “expressly bans sports event contracts” unless operators secure local licences, arguing the statute encroaches on the CFTC’s authority over federally regulated derivatives.

The regulatory pressure is not confined to Kalshi. In April, Wisconsin filed suit against Robinhood, Coinbase, Polymarket, Crypto.com and Kalshi, alleging their sports event contracts amounted to illegal sports betting. Nevada regulators have brought comparable actions against Kalshi, Coinbase and Polymarket.

Why the outcome matters for market structure

The core dispute — whether sports-linked prediction contracts constitute federally regulated derivatives or state-regulated gambling products — carries implications well beyond Kalshi. A definitive appellate ruling could determine whether prediction markets, several of which now overlap with crypto-native platforms such as Polymarket, operate under a single federal framework or remain subject to a patchwork of state gaming laws.

For institutional participants and exchanges eyeing prediction markets as an adjacent asset class to crypto derivatives, the Second Circuit’s eventual decision is likely to shape how such products are licensed, marketed and enforced across US states for years to come.

Read more: Polymarket’s $669m GOP Contract Stays Flat Despite Gaza Strike Report