Kalshi Loses New York Prediction Markets Ruling — July 2026

⏱ 3 min read

Kalshi suffered its most consequential court loss to date on July 7, 2026, when U.S. District Judge Analisa Torres of the Southern District of New York denied the prediction market's motion for a preliminary injunction in KalshiEX LLC v. Williams. The ruling held that New York's gambling statutes are not preempted by the Commodity Exchange Act (CEA) — exposing the structural fragility at the centre of the prediction market industry's national expansion strategy and clearing the way for New York Attorney General Letitia James to pursue civil enforcement.

The decision lands inside one of the fastest-growing segments of US wagering. Combined monthly trading volume on Kalshi and Polymarket has reached nearly $220 billion, up from $28 billion a year earlier, driven overwhelmingly by sports-related contracts — the precise products at issue in New York. Sports contracts make up roughly 90% of Kalshi's volume and generate annualised sports-related revenues of approximately $1.3 billion, according to a Financial Times analysis. Those figures explain why at least 17 states have taken some form of enforcement or legislative action against prediction market operators.

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What the Prediction Markets Judge Actually Decided

The case stems from a cease-and-desist letter the New York State Gaming Commission (NYSGC) sent Kalshi in October 2025, accusing it of operating an unlicensed mobile sports wagering platform via its sports-event contracts. Kalshi sued, arguing the CEA grants the CFTC exclusive jurisdiction over its products and leaves no room for state gambling law. Judge Torres, writing in a 22-page opinion, rejected that argument under all three preemption theories Kalshi advanced — express, field, and conflict.

Critically, Torres did not decide whether Kalshi's contracts qualify as "swaps" under the CEA. She assumed they do — and ruled against Kalshi anyway. That is the most damaging element of the ruling for the industry: the swap classification, which is Kalshi's entire regulatory foundation, was simply not enough. Torres wrote that the CEA "still allows states to regulate certain issues arising from trading" on federally registered exchanges, and pointed out that Kalshi had the option of seeking a New York gambling licence instead of litigating. Kalshi filed a notice of appeal to the U.S. Court of Appeals for the Second Circuit the same day, case number 26-1835.

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A Circuit Split Heading for the Supreme Court

The Torres ruling directly contradicts the Third Circuit's April 6, 2026 decision in KalshiEX LLC v. Flaherty, where a divided 2-1 panel found that the CEA preempts New Jersey's gambling laws as applied to Kalshi's sports-event contracts. That split — the Third Circuit for Kalshi, the Second Circuit now likely to be against — is precisely the kind of multi-circuit conflict the U.S. Supreme Court typically agrees to resolve. Legal commentators and Sportico have both flagged a Supreme Court petition as probable before year's end.

The Sixth Circuit has also sided against Kalshi's preemption theory (in KalshiEX LLC v. Schuler, April 2026), aligning with Torres. Arizona's situation adds a further dimension: a federal court there issued a permanent injunction blocking state criminal prosecution, but the charges — 20 misdemeanor counts, the first criminal prosecution of a CFTC-registered exchange in US history — remain on the docket pending final resolution.

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The Prediction Market State Battlemap

State	Status	Key Development (2026)	Outcome for Kalshi
New York	Enforcement active	SDNY injunction denied July 7; AG enforcement pending	Loss — appealing to 2nd Circuit
New Jersey	Injunction in place	3rd Circuit ruled CEA preempts NJ gambling law (Apr 6)	Win — but NJ DGE appealing
Michigan	TRO active	$120,000-per-day fine for non-compliance	Restricted; ongoing
Nevada	Injunction in place	Contempt hearing July 16 over alleged geofencing failure	Risk of contempt
Arizona	Criminal charges filed	20 misdemeanor counts; permanent injunction blocks prosecution for now	Ongoing criminal case
Minnesota	Felony ban incoming	First-of-its-kind felony ban takes effect August 1, 2026	Exit or face criminal exposure
Connecticut	Enforcement active	CFTC lost PI motion; Wallach flags knock-on risk from NY ruling	Adverse

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What This Means for Operators and Bettors

For licensed sportsbook operators — including those at DraftKings, FanDuel, and comparable platforms — the New York ruling is positive news. The American Gaming Association (AGA) has lobbied aggressively to rein in prediction markets, and AGA language appeared verbatim in Maryland's official CFTC filing against the sector. A Supreme Court ruling that ultimately sides with the states would eliminate prediction markets' ability to offer nationwide sports contracts without the same licensing costs, taxes, and responsible-gambling requirements that regulated sportsbooks must meet.

• New York bettors who use Kalshi's sports contracts face an increasingly uncertain legal environment. The NYSGC cease-and-desist remains live; AG James has signalled she intends to pursue disgorgement and civil penalties.
• The Torres ruling does not close Kalshi's New York operations entirely — general prediction market contracts unrelated to sports are not at issue — but sports-event contracts represent the overwhelming majority of volume.
• Regulated sportsbooks in New York already pay a 51% gross gaming revenue tax. Kalshi pays none to the state. That gap is central to the AGA's case and to Torres's finding that New York's gambling interests outweigh Kalshi's preemption argument.

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What Comes Next

Kalshi has asked the Second Circuit for an emergency injunction pending appeal. Judge Torres ordered New York state officials to file an opposition by July 22, with a decision expected shortly after. Separately, New York agreed not to take enforcement action against Kalshi through July 30 while the emergency request is considered — giving the Second Circuit a narrow window to act before that standstill expires. Minnesota's felony ban takes effect August 1, adding another deadline to an already compressed schedule.

The CFTC has filed its own federal lawsuits against at least nine states — including New York, Arizona, Connecticut, Illinois, and Kentucky — arguing those states' enforcement actions interfere with federal commodities law. The agency's proposed rulemaking from June 10 would formalise which sports contracts are permissible, but it includes a 90-day comment period before any final rule, meaning no regulatory clarity is imminent. Former SEC Chair Gary Gensler has publicly predicted the preemption dispute will ultimately be decided by the Supreme Court.

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Sources

This article was verified against federal court records, official government statements, and specialist legal and industry reporting. Primary sources are listed first.

New York gambling laws as applied to Kalshi's sports-event contracts are not preempted by the CEA and Kalshi has not, therefore, made a clear or substantial showing that it is likely to succeed on the merits.

— Judge Analisa Torres, U.S. District Court, Southern District of New York · KalshiEX LLC v. Williams, No. 25 Civ. 8846 (AT), July 7, 2026