The Empire State has considerably upped the stakes in its war against Kalshi and sports prediction markets.
New York Governor Kathy Hochul and Attorney General Letitia James announced early on Friday that they sued Kalshi for allegedly “running an illegal gambling operation" in the state.
- New York sued Kalshi to shut down its sports prediction markets, arguing the company is operating an illegal gambling business without a state license.
- The lawsuit seeks a permanent ban in New York and could impose more than $36 billion in penalties if the state prevails.
- Kalshi argues its prediction markets are federally regulated by the CFTC and says New York lacks the authority to block its operations.
The lawsuit seeks to both shut down that alleged sports betting (as well as event contracts tied to “culture, elections, and other events”) and hit the prediction market operator with potentially billions in penalties.
“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,” Gov. Hochul said in a press release. "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."
Yet Kalshi and other prediction markets maintain that they are governed by federal law and regulation, particularly that of the Commodity Futures Trading Commission (CFTC).
The New York lawsuit is one of a growing number involving these claims, as well as those of state gambling regulators seeking to shut down trading of sports event contracts, which they just see as sports betting.
The CFTC sued New York in April trying to stop the state’s efforts to crack down on prediction markets. Moreover, it tried to get out in front of this latest lawsuit by seeking a temporary restraining order against New York.
Sad stuff
Kalshi also tried to fend off such a lawsuit but was denied a preliminary injunction earlier this month by the U.S. District Court for the Southern District of New York. Kalshi was then denied an injunction pending appeal earlier this week and was denied similar protection from an appeals court judge.
“It's sad to see this type of political theater from the leadership in our own state,” said Elisabeth Diana, Kalshi’s head of communications, in a statement. “States can’t just shut down a federally licensed exchange. This would also hurt New Yorkers, who would be driven offshore. We love New York, we love New Yorkers, and New Yorkers love our product."
However, New York’s lawsuit seeks some significant relief, and in ways that go beyond what other states have sought or managed to obtain.
For one thing, the state wants Kalshi to stop offering not just sports-related event contracts for trading, but also those tied to "culture, elections, and other events," which could cover almost everything on the exchange.
The state also wants Kalshi enjoined from operating its business "within or from New York," which is where the company is based. In other words, this kind of remedy could just shut down Kalshi.
So, in seeking to permanently stop Kalshi from operating its alleged "gambling business" in the state without a license from New York sports betting regulators, the state could curb that business in other parts of the U.S.
That may clash with other court decisions, such as a recent one in Minnesota that found it looks likely that the CFTC is correct about its claims of "exclusive jurisdiction" over prediction markets
The New York AG's Office is seeking $36 BILLION in compensatory damages from Kalshi "at a minimum" pending a full accounting. This includes nationwide disgorgement, full restitution to customers, 3X amount of its gain + $100K civil penalty for each illegal sports bet offer. pic.twitter.com/6PtJrcIZgq
— Daniel Wallach (@WALLACHLEGAL) July 31, 2026
Nevertheless, New York also wants Kalshi to cough up an accounting of all its activity and pay "restitution, disgorgement, damages, and penalties."
Those penalties sought include "three times the amount of (Kalshi's) gain from the illegal practices alleged" and $100,000 for "each offer or attempt to offer sports wagering or mobile sports wagering in New York without authorization."
If that is ever approved, and the case is by no means settled yet, the bill could add up quickly. According to court records, it could eventually total more than $36 billion.
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Talks failed
As reported by the Wall Street Journal, Kalshi tried to negotiate with New York to stave off its enforcement efforts amid the ongoing legal battle. This included proposing a tax that was estimated to be potentially worth billions to New York over the coming years.
However, those talks broke down and New York filed its lawsuit.
At any rate, it could take a while for the courts to address the New York lawsuit and the state's efforts to enforce its laws and extract penalties from Kalshi.
Gaming attorney Daniel Wallach posted on X/Twitter that Kalshi has already removed the lawsuit to federal court, and that New York's likely efforts to move it back to state court will take time.
