New York Suing Kalshi, Citing Illegal Gambling Operations

A bad week for prediction markets in the Empire State got worse, as attorney general Letitia James announced New York is suing Kalshi for what it terms illegal gambling.

James and New York governor Kathy Hochul jointly announced their lawsuit against Kalshi, asking for fines equal to three times what Kalshi took in. That could reach as high as $36 billion. Such a judgment would currently bankrupt Kalshi, which is valued at just $22 billion.

Kalshi is currently seeking a $40 billion valuation, which could leave it operational if it loses this suit. However, this is just one potential lawsuit, meaning an unfavorable judgement regarding New York suing Kalshi could be just the beginning.

The suit has been filed in state court, which has been the preferred choice of state attorneys general. However, federal courts have not been any kinder to Kalshi and the Commodity Federal Trading Commission (CFTC) as of late. On July 30, United States District Judge Analisa Torres of the Southern District of New York found the CFTC unlikely to succeed on the merits. As a result, she denied an injunction against New York enforcing its state gambling laws.

That was an emergency effort to block New York’s efforts to rein in prediction markets. With the injunction denied, New York suing Kalshi was free to proceed, and the results could have wide-reaching consequences.

What Has Happened in New York Regarding Prediction Markets?

The Empire State has taken one of the most aggressive stances to protect its regulated gambling operators. Although it has no iGaming, New York allows nine registered sportsbooks to operate. It has some of the highest operator taxes in the country.

That makes entering the New York market costly, but sportsbooks have done so because of how lucrative the market is. New York is currently the largest legal gambling market in the United States, with 20 million residents.

As such, the state has tried to protect its legal operators. Earlier this year, Hochul banned state employees from using prediction markets. The year before, James had several sweepstakes casinos shut down in New York.

What is The Road Map For New York Suing Kalshi?

Putting a dollar figure almost certainly ensures the case will either reach the United States Supreme Court or be denied by it. Neither side is likely to back down with this amount of money, and the number of states involved with their own lawsuits regarding prediction markets will almost certainly need the Supreme Court to weigh in.

That means that this decision is likely in the early stages of the ultimate destination. In the short term, New York is likely to be able to force Kalshi to geofence the state. That’s a difficult blow for Kalshi, as it has its headquarters in New York City. But if a judge grants an injunction, Kalshi would be unable to operate in its own offices.

This case will likely play out over several months. One thing could speed up the timeline: another state’s lawsuit with Kalshi coming before the Supreme Court. If that happens, this case would likely get put on hold, as such a case would supersede any judgment in this case.

What Are the Next Steps?

With federal court resulting in a dead end, Kalshi’s options are limited. It could appeal to a higher federal court, but most likely, it will begin to prepare for court and hope for a more favorable result.

If the injunction succeeds, it might trigger similar actions in other states. Several of New York’s neighbors also have robust gambling laws, and New York suing Kalshi might provide them with a path to do the same.