Kalshi’s bid to operate in New York just hit a major legal setback. A federal judge rejected the prediction market operator’s request for a preliminary injunction against the state’s Gaming Commission, dealing a real blow to Kalshi’s efforts to position its sports event contracts as exempt from state gambling oversight.

New York Ruling Sets Challenging Precedent

Judge Analisa Torres of the Southern District of New York handed down the decision on Tuesday. Her finding was straightforward: Kalshi hadn’t made a strong enough case that federal commodity law actually preempts New York’s gambling regulations. The company failed to show it would likely win on the merits, particularly when it comes to whether the Commodity Exchange Act was ever meant to override state gambling laws entirely.

Torres zeroed in on congressional intent. Lawmakers clearly didn’t design the CEA to wipe out all state gambling regulations from applying to swap transactions, she reasoned. In other words, Kalshi’s core argument that federal commodity authority trumps local rules didn’t hold water.

Legal observers see this as a substantial blow, especially given New York’s status as the country’s largest sports betting market. If this ruling stands on appeal, the ripple effects could be serious. Other pending cases in Connecticut and throughout the Southern District could face similar outcomes. Kalshi might end up forced to exit New York entirely, just as it already did from Nevada.

Arizona Battle Escalates to Appeals Court

But New York isn’t Kalshi’s only headache. Arizona threw down its own injunction rejection, yet here’s where it gets interesting: a federal judge sided with the Commodity Futures Trading Commission instead. The court granted an injunction preventing Arizona from enforcing criminal charges it had previously filed against Kalshi.

Arizona isn’t taking that lying down. The state appealed to the Ninth Circuit Court of Appeals, with opening briefs due August 3rd. And frankly, Arizona’s been the aggressive player here, already pushing out other prediction market operators like Crypto.com and Robinhood. Don’t expect them to back off now.

For its part, Kalshi has also appealed to the Ninth Circuit on multiple fronts, challenging both the Arizona injunction denial and an ongoing case against Nevada.

Supreme Court May Have the Final Say

Legal experts increasingly expect these battles to eventually land at the Supreme Court. That said, some observers actually give prediction markets a fighting chance at that level, largely because of how aggressively the CFTC has positioned itself. The federal agency has filed affirmative litigation against multiple states, making it clear how seriously the current administration is treating this issue. Courts have seemed sympathetic to the CFTC’s jurisdictional arguments so far.

The CFTC has also filed suit in New York itself, though no judgment has come down yet. Judge Torres’ decision stings for Kalshi, sure. But this fight isn’t over. These cases cut to something fundamental: federal authority versus state control over emerging financial products. The legal landscape will shift substantially before all appeals are exhausted.