Kalshi Loses Bid to Override New York Gambling Laws in Federal Court

Published by James Harris on July 9, 2026July 9, 2026

Federal courts remain split on whether the Commodity Exchange Act preempts state gambling law. A Manhattan judge just made that split harder to resolve quickly.

U.S. District Judge Analisa Torres denied Kalshi’s request for a preliminary injunction on Tuesday, ruling that New York can continue applying its gambling laws to the prediction markets platform’s sports-event contracts. The ruling found that federal commodity law does not automatically override state gambling statutes, and that New York’s interests in preventing gambling addiction, protecting sports integrity, and limiting unregulated contracts “heavily” outweigh Kalshi’s preemption arguments. Kalshi has filed an appeal with the Second Circuit.

Torres was direct about the legal uncertainty: courts across the country are split on this question, and Kalshi had not made a clear showing it was likely to win on the merits. New York Governor Kathy Hochul and Attorney General Letitia James issued a joint statement welcoming the decision, framing it as consumer protection. “We will continue to hold all gambling platforms accountable to the law, and that includes prediction markets,” they said.

The Federal-State Collision Is Now Structural

The CFTC has not been a bystander. Chairman Michael Selig has claimed the agency holds “exclusive” authority over commodity derivatives, which it says includes prediction markets. The CFTC sued nine states to block enforcement of state gambling laws against Kalshi and other federally regulated platforms, challenging moves in Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, Rhode Island, and Wisconsin alongside New York. That is not routine agency behavior. That is a deliberate strategy to force a circuit split and push the question toward the Supreme Court, a trajectory legal observers expect to resolve within 12 to 18 months.

The precedent this most closely resembles is the decade-long legal fight over daily fantasy sports, where DraftKings and FanDuel operated in a gray zone between federal silence and aggressive state-level enforcement until a patchwork of state-by-state licensing deals became the de facto regulatory framework. Prediction markets are following a similar arc, except this time a federal regulator is actively litigating on the industry’s side rather than staying neutral. That changes the math considerably, but it does not change the immediate outcome for Kalshi in New York.

On April 21, New York filed separate lawsuits against Coinbase Financial Markets and Gemini Titan, accusing both of promoting gambling through their own event contracts. Three days later, the CFTC sued New York. The state is not treating this as a Kalshi-specific dispute.

Google’s Policy Update Adds a Distribution Problem

The court loss landed alongside a separate setback. Google updated its Chrome Web Store Developer Program policy to prohibit browser extensions that “facilitate or enable real money transactions on predictive outcomes.” Enforcement begins August 1, 2026. For a category of platforms that depends heavily on user-facing tools and integrations to drive engagement, losing a major browser distribution channel matters in ways that a single court ruling does not.

Google’s parent Alphabet has been aggressive on AI spending and platform policy updates in 2026, and the prediction market ban fits a broader pattern of the company tightening what financial products can live inside Chrome extensions. Whether this reflects a considered policy view or liability management is unclear from the announcement, but the timing compounds Kalshi’s near-term operational pressure.

The Malcolm Todd fake-streams episode, in which Kalshi had already settled a prediction market tied to manipulated Spotify chart data, is the kind of incident that gives both state regulators and platform companies concrete examples to point to. Spotify’s subsequent request for branding removal after finding and pulling more than 500,000 fraudulent streams is a minor story on its own. As an illustration of the integrity risks prediction markets carry into adjacent industries, it is not minor at all.

The core legal question, whether the CFTC’s authority is truly exclusive or merely concurrent with state law, will not be settled in the Second Circuit. It will be settled by the Supreme Court, eventually. Until then, Kalshi and its competitors are operating under a patchwork that just got one layer heavier.