Kalshi suffered a blow to its legal status in New York as a judge declined to grant the company a preliminary injunction in its lawsuit against the state’s Gaming Commission. In Arizona, where the Commodity Futures Trading Commission (CFTC) was granted an injunction, the state is taking its case to the Ninth Circuit Court of Appeals.
Judge Analisa Torres rejected Kalshi’s request for an injunction against the New York State Gaming Commission on Tuesday. In her ruling, Torres stated that, “New York gambling laws as applied to Kalshi’s sports event contracts are not preempted by the CEA and Kalshi has not, therefore, made a clear or
substantial showing that it is likely to succeed on the merits.”
Major Loss For Kalshi
Legal expert Daniel Wallach described the ruling as a “Major, major loss for Kalshi in the financial capital of the US, with likely knock-on effects in other cases.”
Kalshi is based in New York, the largest sports betting market in the country. Last year, New Yorkers wagered over $26 billion on sports.
Congress Did Not Intend to Preempt New York Gambling Laws
Kalshi claims that the Commodity Exchange Act (CEA) preempts state laws and permits the company to offer markets on sports and almost everything else.
Judge Torres, however, stated that Congress’s intent is key to preemption and that lawmakers did not intend to “regulate so broadly as to exclude all state gambling laws from regulating transactions involving swaps.”
As such, Kalshi has not successfully shown that its sports markets should be authorized by the CEA and exempt from state gambling laws.
If upheld, the ruling could force Kalshi to withdraw from New York, as it has done in Nevada. To date, only Nevada has successfully restricted Kalshi’s sports markets.
State Appeals Injunction in Arizona
In Arizona, like New York, Kalshi was denied an injunction. However, a judge granted the CFTC an injunction against the state in its lawsuit, filed to defend the CFTC’s exclusive jurisdiction over prediction markets.
Court documents show that the state has appealed against this ruling in the Ninth Circuit, with an opening brief due on August 3.
Arizona has managed to drive out other prediction market operators, including Crypto.com and Kalshi’s partner, Robinhood. The state took the unprecedented step of filing criminal charges against Kalshi. The injunction granted to the CFTC means it cannot enforce those charges, for now.
Kalshi has also appealed to the Ninth Circuit against the decision denying the company an injunction in Arizona. It has also appealed to the Ninth Circuit in its case against Nevada, which remains ongoing.
CFTC Involvement Could Sway Supreme Court
The legal battles are likely to end up in the Supreme Court, say legal experts. William Walsh, a partner at Benesch Law, told CasinoBeats that he gives prediction markets the edge there because of the CFTC’s involvement.
“The CFTC’s active litigation approach, filing affirmative lawsuits against multiple states, demonstrates how high of a priority this is for the administration,” Walsh stated, “And the courts seem to be sympathetic to the CFTC’s position.”
The CFTC has also filed a lawsuit in New York, but no judgment has been issued yet. While Judge Torres’ ruling is a blow to Kalshi, it is by no means the end of the matter.
