New York officials may take steps regarding Kalshi's operations as early as Thursday. A federal appeals court judge denied Kalshi's request for an injunction that would have stopped state officials from acting against the prediction market. This comes as Kalshi is involved in a lawsuit against New York over an order to cease offering derivative contracts related to sports events for residents.
The ruling by U.S. Circuit Judge Myrna Perez from the U.S. Second Circuit Court of Appeals follows a similar rejection by a federal district judge in Manhattan just two days prior. Notably, this decision arrives just before a negotiated pause on New York pursuing penalties against the federally regulated entity is set to expire.
Although Judge Perez denied temporary relief pending a review by a three-judge panel, she has referred the case to them. It remains uncertain how quickly this panel will act.
Earlier on Wednesday, Kalshi submitted its response to the state's opposition against the injunction at the appellate level. In a 20-page document, Kalshi’s legal team contended that trading contracts on an exchange regulated by the U.S. Commodity Futures Trading Commission, which are linked to sports event outcomes, is fundamentally different from placing bets through a sportsbook.
Kalshi’s response emphasized that its event contracts are tradable instruments on a nationwide market, with prices determined by market dynamics. In contrast, sports bets are described as transactions between customers and companies, where bookmakers set prices to their advantage. Kalshi argues that these contracts cannot be traded on an exchange and therefore do not qualify as swaps.
The ongoing lawsuit is still in its early phases, with Kalshi seeking a ruling to prevent New York from pursuing legal action against the prediction market for alleged violations of state gambling laws. So far, judges have indicated that Kalshi has not convincingly demonstrated the likelihood of success in its case.
On the other hand, the judges have supported the state’s position, which argues that allowing Kalshi to continue facilitating trades of sports event contracts could harm both the state and its residents.
The state has raised concerns that prediction markets permit individuals as young as 18 to engage in trading, while New York’s gambling regulations set the minimum age for betting through licensed sportsbooks at 21. Additionally, New York is the largest state with multiple licensed sportsbooks and generates substantial tax revenue through a 51% tax on operator revenue, amounting to $1.32 billion for the 2025 calendar year.
Kalshi has claimed that without an injunction, it would face significant financial harm. The company argues that a state order to block sports event contracts through geofencing would hinder its ability to compete in one of the most lucrative markets in the country, particularly given New York City’s status as the financial capital. Last year, New York led the nation in per capita gross domestic product at $123,369.
Moreover, Kalshi pointed out that if it were banned in New York, it would encounter a similar situation as in Michigan, where a state judge allowed officials to enforce a ban on the prediction market. This has resulted in potential fines of $120,000 per day for non-compliance with geofencing solutions. Following that ruling, the CFTC instructed Kalshi not to comply with the judge's order, which could lead to federal penalties if the company restricts Michigan residents from trading.
Kalshi stated that implementing a geofencing solution would require significant investment, similar to what is needed in Michigan and Nevada through GeoComply. Alternatively, the company would incur state fines, which it anticipates could be substantial.