Kalshi's Federal Suit Tests CFTC Supremacy in Clash With NY Sports Betting Ban

Kalshi, a CFTC-registered prediction market platform, has filed a federal lawsuit against the New York State Gaming Commission to block enforcement of the state's ban on its sports betting contracts. The platform argues that the Commodity Futures Trading Commission (CFTC) holds exclusive jurisdiction over derivatives trading under the Commodity Exchange Act, rendering New York's regulatory actions unconstitutional under the Supremacy Clause, according to a Lookonchain report. The lawsuit, filed on October 27, 2025, seeks emergency relief to prevent the state from imposing civil penalties or criminal charges for offering event contracts on sports outcomes, according to a crypto.news report.

The dispute centers on New York's cease-and-desist order issued on October 24, which accused Kalshi of operating an unlicensed mobile sports betting platform. The state regulator defined Kalshi's contracts as "sports wagering" under New York law, requiring compliance with licensing, taxation, and regulatory frameworks applicable to traditional sportsbooks, according to Sports Betting Dime. Kalshi counters that its operations are federally sanctioned, having self-certified its sports event contracts with the CFTC in January 2025, according to a Coinotag report. The platform claims the CFTC's 2020 designation of Kalshi as a Designated Contract Market (DCM) confirms its status as a federally regulated derivatives exchange, shielding it from state-level oversight, according to CryptoNews.

Legal experts note that Kalshi's strategy of filing first in federal court has been effective in prior cases. Daniel Wallach, a gaming law specialist, highlighted that this approach frames the dispute around federal preemption rather than the legality of the contracts themselves. In similar cases in Nevada and New Jersey, courts have granted preliminary injunctions favoring Kalshi, ruling that the CFTC's exclusive jurisdiction over swaps and futures preempts state regulations, according to a Coinotag analysis. However, outcomes have been mixed: a Maryland court ordered Kalshi to halt operations temporarily, while a recent Nevada ruling against rival Crypto.com demonstrated judicial scrutiny of whether sports prediction markets qualify as swaps under federal law, as detailed by Decrypt.

The stakes are high for Kalshi, which estimates potential annual revenue losses of over $50 million in New York if forced to cease operations. The platform also faces broader regulatory challenges, with states like Illinois and Arizona expected to follow New York's lead. Wallach predicts that recent state-friendly rulings, such as the Nevada court's rejection of Crypto.com's case, could embolden more states to act against prediction markets, as noted by Decrypt.

New York's gaming commission has not publicly responded to the lawsuit but has emphasized its authority to enforce state gambling laws. The commission's cease-and-desist letter warned of "imminent civil penalties and fines" if Kalshi continues offering sports event contracts, which it views as a threat to the state's regulated sports betting industry, according to Sports Betting Dime.

The outcome of this case could set a precedent for how state and federal regulators interact in the rapidly evolving prediction markets sector. With over 1.2 million event contracts traded annually on CFTC-regulated platforms, the CFTC has positioned itself as a key arbiter in preventing a fragmented regulatory landscape, according to Coinotag.