The state of New York has sued Kalshi in state court and is asking for $36 billion in damages in what looks set to be the most consequential state lawsuit against the prediction market to date.
453272_2026_People_of_the_State_of_v_People_of_the_State_of_PETITION_1The lawsuit was filed at 12:01 a.m. Friday, the first day that the state was free to sue Kalshi. The state had previously agreed not to attempt to enforce its gambling laws against the business while the U.S. District Court for the Southern District of New York considered whether to grant Kalshi an injunction. When the District Court rejected Kalshi’s bid for an injunction, the prediction market appealed to the U.S. Court of Appeals for the Second Circuit, asking for an emergency injunction to shield it from enforcement while the appeal was heard.
Both the District Court and Second Circuit denied Kalshi emergency relief, meaning that starting Friday, the state was allowed to sue.
NY says Kalshi is ‘quintessentially gambling’
New York’s complaint says that Kalshi is operating a gambling business without a license. In addition, the platform offers some wagers that are not permitted under New York’s sports betting laws, such as bets on in-state college sports teams.
“What Respondent offers through its Platform is quintessentially gambling: it allows a bettor to stake or risk money upon the outcome of a contest of chance or a future contingent event not under the bettor’s control or influence, upon an agreement or understanding that he will receive something of value in the event of a certain outcome,” the state’s complaint said.
Besides sports contracts, the lawsuit also names contracts on elections and culture as being against New York law.
New York law says the state can require illegal gambling operators to pay a fine of three times their gains from their operation, plus $100,000 for every bet from the state. The state calculated that the total value of those damages, which it is seeking, is $36 billion. Kalshi’s entire fee revenue since launching is $1.6 billion, before any costs, and its last completed fundraise was at a valuation of $22 billion.
Despite the state court being a different venue, Kalshi’s defense is likely to lean on similar arguments it has made in federal court — that the state’s sports betting laws are preempted by the Commodity Exchange Act (CEA) and therefore do not apply to Kalshi. Federal courts have been divided on this argument, with some ruling Kalshi’s way and some siding with states. However, state courts — arguably less sympathetic to arguments of federal jurisdiction over states — have so far unanimously ruled against Kalshi when lawsuits about sports event contracts have come before them.
Governor says Kalshi ignores gaming laws
In a press release, New York Gov. Kathy Hochul and Attorney General Letitia James said Kalshi has to play by the same rules as sportsbooks.
“Kalshi has chosen to ignore New York’s gaming laws, which exist to protect consumers, prevent problematic gambling, deliver funding for critical public services, and ensure that every company plays by the same rules,” Hochul said. “This choice has consequences, and working closely with Attorney General James, New York is taking action to stop this illegal behavior and bring Kalshi into compliance, because no company is above the law.”
Bill Miller, president and CEO of the American Gaming Association, supported the lawsuit.
“A massive, bipartisan coalition of attorneys general across America have made clear sports betting on so-called ‘prediction markets’ like Kalshi is illegal,” he said in an emailed statement. “We applaud the State of New York for taking this important and necessary action today to uphold the rule of law, protect consumers, and defend the nearly 70,000 New York jobs supported by the legal gaming industry. It is estimated that the “prediction market” evasions of state and tribal law have siphoned more than $1.2 billion in gaming tax revenue from critical community initiatives across America.”
Kalshi tries to get case heard in federal court
Kalshi immediately moved to have the case heard in federal court instead, a step that it has taken with virtually all state lawsuits it has faced. However, the standard to have a case heard in federal court is generally more difficult to meet than the standard to win an injunction, and all of Kalshi’s bids to have other state lawsuits heard in federal court have failed, so the filing may be more of a desperation move. Kalshi made three arguments here — that the CEA specifically set up a system where parties can sue in federal court for violations of the law and made clear that it was the only way to sue, that it was acting as an agent of the federal government, and that New York should have named the Commodity Futures Trading Commission as a co-defendant.
Assuming the case does get back to the state court, proceedings could be quick as the state has requested a “special proceeding.” A special proceeding only requires a single written brief from each party, with no hearing or replies.
Even without any possible fine, if Kalshi was forced to stop offering sports, election, and culture contracts in New York, that would be its most significant legal defeat to date. Home to 20 million people, New York would easily eclipse Nevada and Michigan as the largest state to ban Kalshi contracts. In addition, Kalshi is headquartered in New York City and has focused much of its marketing there.
