New York State has sued prediction market Kalshi, seeking to force it to pay $36 billion in damages and effectively shut the site down.
State officials allege that Kalshi acts as an illegal gambling operation, as it allows people to place monetary wagers on the outcomes of sports games, elections, cultural happenings, and other daily events without having a proper license from the state’s gaming commission.
“No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple,” said Attorney General Letitia James, whose office brought the New York Supreme Court suit jointly with Gov. Kathy Hochul’s office early Friday morning. “By ignoring our laws, Kalshi is running an illegal operation and harming New Yorkers in the process.”
The suit, which accuses Kalshi of breaking over half a dozen laws, is the latest development in the ongoing national argument over whether prediction markets are gambling sites — and people are placing bets on the outcomes of various daily events. Kalshi, however, contends that it and other prediction markets are what’s known as federally licensed exchanges, similar to stock markets, with its users “trading” swaps of cash flows over event outcomes.
In a statement, Kalshi maintained it is not a gambling operation, and as a federally licensed exchange, argued that New York cannot prevent it from operating through a lawsuit like this.
“It’s sad to see this type of political theater from the leadership in our own state. States can’t just shut down a federally licensed exchange,” said Elisabeth Diana, head of communications for Kalshi. “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.”
Kalshi was founded by Luana Lopes Lara and Tarek Mansour.Kalshi.com.
The prediction market also said it believes the state is taking them to court purely because it wants to please the new downstate casinos, as they may feel prediction markets operate as a competitor of sorts, and that the suit is too far-reaching.
New York seeks a nationwide ban on the site (which Kalshi says only a federal regulator could do) and to characterize all of the wagering on its site as gambling, a much broader case than states have previously brought, which typically target only the site’s sports section.
For example, a recent Manhattan federal court ruling denied Kalshi’s preliminary request to block state oversight, but that was only for the sports section of its site.
When judges find Kalshi and other prediction markets to be federally licensed exchanges, that means states don’t have the power to regulate them. Federally licensed exchanges are subject to regulation by President Trump’s Commodity Futures Trading Commission, which has said it supports prediction markets being in its wheelhouse.
If judges find that they’re gambling operations, states have full rein to regulate them according to their state gambling laws.
Federal judges in Minnesota and New Jersey have ruled in favor of prediction markets, saying they believe they’re federally licensed exchanges, and federal judges in New York and Wisconsin have agreed that states have at least some power to regulate them.
It’s likely the legal question over whether prediction markets are gambling sites or another type of federally regulated stock market will eventually reach the U.S. Supreme Court in the coming years.