On July 7, 2026, the United States District Court for the Southern District of New York (SDNY) in KalshiEX LLC v. Williams denied a motion for a preliminary injunction barring the New York State Gaming Commission from enforcing state gambling laws against sports-related event contracts. The decision is the latest development in a wave of nationwide litigation testing whether the Commodity Exchange Act (CEA) preempts state gambling regulation as applied to prediction-market platforms offering contracts tied to sporting events. The ruling deepens an existing split among courts that have considered the issue, and underscores that Kalshi's federal designation as a contract market does not, by itself, insulate its sports-related products from state-law scrutiny.

Event Contracts and The Regulatory Backdrop

Kalshi operates a prediction market, registered with the Commodity Futures Trading Commission (CFTC) as a designated contract market (DCM), on which users trade “event contracts,” derivatives (or financial contracts) where the payout depends on whether a specified future event occurs. Under the CEA’s self-certification regime, a DCM may list a new contract for trading without advance CFTC approval simply by certifying that the contract complies with applicable law, subject to a one-business-day waiting period. In January 2025, Kalshi self-certified and began listing a slate of sports-related event contracts, allowing users to take positions on the outcomes of games and tournaments.

Separately, the CEA’s “Special Rule,” added by the Dodd-Frank Act, gives the CFTC authority to review and prohibit event contracts that are “contrary to the public interest” because they involve, among other things, “gaming” or activity that is “unlawful under any Federal or State law.” CFTC has not exercised that authority to block Kalshi's sports-event contracts, and on June 10, 2026, it issued a notice of proposed rulemaking seeking public comment on how the Special Rule should apply to prediction-market event contracts going forward.

New York law requires any entity offering sports wagering to hold a license from the state’s gaming commission. Kalshi is not so licensed. After the gaming commission sent Kalshi a cease-and-desist letter in October 2025, Kalshi sued, seeking a declaration that the CEA preempts New York's gambling laws as applied to its platform and an injunction barring enforcement.

The Court’s Ruling

Eleventh Amendment. The court first dismissed the gaming commission itself as a defendant, holding that the agency is entitled to Eleventh Amendment immunity and that the Ex parte Young exception, which permits suits for prospective relief against state officials in their official capacities when they are allegedly attempting to enforce unconstitutional laws, does not extend to suits against the state agency itself. The case thus proceeded solely against the individual commissioners in their official capacities.

Preemption. The heart of the decision addressed whether federal law (the CEA) preempts state gambling regulations as applied to prediction markets. Applying the presumption against preemption that attaches to areas of traditional state police power, and concluding that gambling regulation falls squarely within that category, the court assumed, without deciding, that Kalshi's sports-event contracts qualify as “swaps” subject to the CFTC’s “exclusive jurisdiction” under CEA § 2(a)(1)(A). Even so, it held that New York’s gambling laws are not preempted, for three main reasons:

First, the court addressed field preemption, which occurs when a pervasive scheme of federal regulation implicitly precludes supplementary state regulation or when states attempt to regulate a field where there is a sufficiently dominant federal interest. The court found that Section 2 of the CEA, which includes a savings clause preserving the jurisdiction of “other regulatory authorities … under the laws of the United States or of any State,” signals that Congress did not intend to occupy the entire field with regard to highly regulated areas like gambling. The court also read the Special Rule’s reference to contracts that are unlawful under “State law” as an affirmative sign that Congress meant state and federal law to operate side by side, and noted that Congress expressly preempted state gaming laws in narrower, specified circumstances elsewhere in the CEA, showing that it knew how to preempt state gambling law when it wished to, and chose not to do so more broadly.

Second, the court dealt with conflict preemption, which occurs when simultaneous compliance with both federal and state regulations is impossible or when state law poses an obstacle to the accomplishment of federal goals. The court rejected Kalshi’s argument that compliance with New York law would be impossible given CFTC’s “impartial access” requirement for DCMs, explaining that impartial access bars discriminatory access criteria but does not require a DCM to offer every contract nationwide; Kalshi remains free to seek a New York license and establish a category of New York market participants that does not discriminate within that category. 

Third, the court held that New York's laws do not stand as an obstacle to the CEA's objectives. Relying on the legislative history of the Special Rule, including Senator Blanche Lincoln's statement that the provision was meant to prevent event contracts on sporting events such as the Super Bowl and the Kentucky Derby from being used “solely for gambling,” the court concluded that Congress anticipated and sought to guard against exactly the kind of sports-event contracts Kalshi lists. The court further emphasized that self-certification reflects only Kalshi's own view of legality, not a CFTC determination, and that CFTC's decision not to invoke the Special Rule against Kalshi's contracts is not proof that those contracts are lawful.

Other Factors. The court also found that Kalshi did not face irreparable harm but only monetary or speculative injury and that the balance of equities and public interest weighed against an injunction. Because all four preliminary-injunction factors weighed against Kalshi, the court denied the motion in full.

A Deepening Circuit and District Split

This ruling adds to an increasingly fractured national landscape. Kalshi has now prevailed in some jurisdictions, including the Third Circuit (in the Flaherty matter) and the Middle District of Tennessee (in Orgel), and lost in others, including the Sixth Circuit (Schuler II), the District of Arizona (Johnson), the District of Maryland (Martin), and the District of Nevada (Hendrick). Courts remain divided even on the threshold question of whether Kalshi’s sports-event contracts qualify as “swaps” under the CEA at all, an issue the Southern District of New York, like several other courts, avoided deciding by assuming the point in Kalshi’s favor and ruling against it anyway on preemption grounds. The pending CFTC rulemaking on the Special Rule’s application to prediction-market event contracts may eventually narrow this split, but for now the legal landscape for sports-event contracts continues to vary meaningfully by jurisdiction.

Practical Takeaways

Though the SDNY’s decision in Williams and the broader battle over whether state gambling authorities can regulate prediction markets are certainly of interest to Kalshi and similar businesses, they also have broader implications. First, these disputes highlight the legal and regulatory uncertainty that businesses unavoidably face in developing new financial products or new products more generally. Innovation and novel legal challenges tend to go hand in hand. Second, they serve as a stark reminder that compliance is a complex and multifaceted obligation—businesses cannot generally focus solely on one regulator, but must be prepared for an interconnected web of federal, state, local and international rules and actors. Third, they show how regulation can turn on how businesses and products choose to define themselves; one man’s sports gambling is another man’s sports-related event contract. Overall, these developments underline how businesses in a complex and evolving regulatory environment must be prepared to be nimble and expect the unexpected. 

Law Clerk Akos Radics contributed to this alert.