Meta description: New York sued Kalshi over sports contracts, citing up to $36 billion in exposure, as the NFL urged tougher CFTC market rules.
Tags: Kalshi, CFTC, Letitia James, NFL, New York Gaming Commission, Sports Event Contracts
market_platform: Kalshi
category: Regulation
New York Attorney General Letitia James sued Kalshi on July 31, alleging the federally licensed prediction-market exchange is operating an illegal gambling business in New York. The Associated Press reported that the state is seeking to shut down Kalshi’s New York operations and pursue forfeiture, restitution, and penalties that could total as much as $36 billion.
The case arrived days after the National Football League filed a July 27 comment letter asking the Commodity Futures Trading Commission to tighten its proposed rule for event contracts involving sports. Together, the New York lawsuit and the NFL letter put the same question before courts and regulators before football season: whether sports event contracts should be treated primarily as federally regulated derivatives or as state-regulated wagering.
What does New York allege Kalshi is doing wrong?
James’ lawsuit argues that Kalshi is offering sports-related event contracts that amount to unlicensed gambling under New York law. According to the Associated Press account of the filing, New York says Kalshi accepted wagers from state residents without a license from the New York State Gaming Commission and exposed users under 21 to products the state treats as sports betting.
The Attorney General’s position tracks a broader campaign by state officials against prediction-market operators. On April 24, the New York Attorney General’s Office said James had joined 37 other attorneys general in an amicus brief supporting Massachusetts’ lawsuit against Kalshi. That filing argued that Kalshi’s sports contracts are not exempt from state gambling laws simply because they are listed on a federally regulated designated contract market.
Kalshi’s core defense is the opposite. The company argues that its contracts are swaps listed on a CFTC-regulated exchange and that the Commodity Exchange Act gives the federal regulator exclusive jurisdiction over those products. The CFTC authorized Kalshi as a designated contract market in 2020, a fact cited by the U.S. Court of Appeals for the Third Circuit in KalshiEX LLC v. Flaherty.
Why does the $36 billion figure matter?
The $36 billion figure is not a damages award. It is the possible exposure described in reporting on the New York action, based on the state’s request for forfeiture of profits, customer restitution, and civil penalties. The Associated Press reported that New York’s requested penalties could reach that amount if the state prevails and the court accepts its theory of liability.
That distinction matters because the number is doing legal and political work before any judgment exists. New York is not merely asking a court to define the boundary between event contracts and sports betting. It is trying to make continued operation in the state financially risky for Kalshi and, by extension, for other exchanges that rely on CFTC registration to offer contracts on sports outcomes.
The Attorney General’s July 8 statement after Kalshi lost an earlier case against the New York Gaming Commission framed the state’s position plainly: New York says prediction markets remain subject to state gambling law when their products function as gambling. Kalshi’s pending appeal in KalshiEX LLC v. Williams, docketed in the Second Circuit as No. 26-1835, shows that the New York fight was already active before the Attorney General’s separate July 31 lawsuit.
How have courts treated Kalshi’s federal-preemption argument?
Courts have split on the practical consequences of Kalshi’s argument, even when they are working from the same federal statute. In KalshiEX LLC v. Flaherty, the Third Circuit on April 6 affirmed a preliminary injunction blocking New Jersey from enforcing state gambling laws against Kalshi’s sports-related event contracts. Judge David J. Porter’s opinion said Kalshi had shown a reasonable chance of success on its argument that the Commodity Exchange Act preempts New Jersey law for swaps traded on a CFTC-licensed designated contract market.
New York has gone the other way at the preliminary-injunction stage. In KalshiEX LLC v. Williams, U.S. District Judge Analisa Torres denied Kalshi’s request to block New York Gaming Commission officials from enforcing state gambling laws against the company’s sports contracts. The New York Attorney General’s Office and Governor Kathy Hochul issued a July 8 statement describing that ruling as a court victory against Kalshi.
The result is a fast-developing jurisdictional conflict rather than a settled national rule. Kalshi can point to the Third Circuit’s favorable preemption analysis in New Jersey. New York and other states can point to their own enforcement actions and to the absence of a Supreme Court ruling squarely resolving how far CFTC jurisdiction extends when the underlying event is a sports contest.
What did the NFL ask the CFTC to change?
The NFL’s July 27 comment letter told the CFTC that the agency’s proposed prediction-market rules fall “significantly short” of protecting sports integrity and consumers, according to The Closing Line’s publication of the letter’s key passages. The league urged the agency to add stronger limits on contracts that it says can be manipulated by players, officials, team personnel, or others with access to material nonpublic information.
The NFL’s requests centered on four regulatory changes. It asked the CFTC to restrict or prohibit markets that are highly susceptible to manipulation, including contracts tied to individual conduct, officiating decisions, player availability, and other outcomes a small number of insiders could influence. It also asked the agency to state that trading sports event contracts on material nonpublic information obtained through a duty to a league, team, or governing body is a manipulative or deceptive practice under the Commodity Exchange Act.
The league also pressed for league-specific prohibited-bettor lists and consumer-protection rules closer to the state sportsbook model. Front Office Sports reported that the NFL urged the CFTC to set a minimum age of 21 for sports event contracts, rather than allowing access at 18 under the proposal.
Those requests put the NFL in a different posture from exchanges seeking broad federal authorization for sports contracts. The league is not asking the CFTC to abandon event-contract oversight altogether. It is asking the agency to make sports integrity, insider access, and consumer protections explicit conditions of the federal framework.
What does the CFTC proposal say now?
The CFTC’s June 10 Notice of Proposed Rulemaking would amend Regulation 40.11 and add Appendix F to Part 40. The agency said the proposal would create a structured framework for determining whether an event contract involves an enumerated activity under Section 5c(c)(5)(C) of the Commodity Exchange Act, including gaming, and whether that contract is contrary to the public interest.
The CFTC release said the proposal responds to growth in the number and variety of event contracts listed by CFTC-registered entities, including contracts referencing sports. Chairman Michael S. Selig said the proposal was intended to give the agency a durable framework for reviewing contracts Congress directed it to scrutinize while allowing legitimate markets to move forward.
The current rule, 17 C.F.R. § 40.11, bars registered entities from listing certain contracts involving terrorism, assassination, war, gaming, or activity unlawful under state or federal law. The core fight is how that rule applies to sports outcomes when the contract is listed on a CFTC-regulated market, especially after the Commission withdrew an earlier event-contract proposal and sports event-contract advisory in February 2026.
Where does the dispute go next?
The CFTC comment period on the June 10 proposal closed July 27, leaving the agency to decide whether to revise, finalize, or further delay its framework for sports event contracts. The New York lawsuit will proceed separately in state court unless removed or otherwise redirected through related federal litigation.
For Kalshi, the immediate business risk is the accumulation of state enforcement actions, federal preemption appeals, and league pressure on the CFTC as sports contracts become a larger part of the exchange’s business. New York’s July 31 complaint says Kalshi reported more than $1 billion in monthly user betting in 2025 and that about 90% was sports-related.
The next concrete signals are the Second Circuit’s handling of KalshiEX LLC v. Williams and the CFTC’s next action on Regulation 40.11 after the July 27 comment deadline. Those proceedings will shape whether sports event contracts keep moving through federally regulated exchanges, or whether state gambling regulators gain more room to block them market by market.