New York and Connecticut could block Kalshi and other prediction market operators by early next year following a federal court ruling against Kalshi and Coinbase. On Tuesday, the Second Circuit denied the companies’ motions for an injunction pending appeal, concluding they failed to make the required showing that relief was warranted.
Did You Know? The ruling marks the ninth time federal decisions within the Second Circuit have gone against prediction markets and the Commodity Futures Trading Commission.
Second Circuit Ruling Threatens Regional Operations
The Second Circuit decision marks the latest setback for prediction markets as New York and Connecticut challenge the legality of sports-related contracts. Gaming attorney Daniel Wallach stated that the pattern of federal rulings points to an uphill battle when the court reaches the merits of the case. He noted that the states are one remand order away from resuming state-court enforcement and securing preliminary injunctions.
Wallach expects Kalshi and other platforms will be forced to geofence at least sports-event contracts in New York and Connecticut by early 2027. Some operators, including ProphetX, Gemini, and Webull, already pulled out of Connecticut after state authorities issued cease-and-desist letters in September. However, companies may be more reluctant to exit New York due to its sheer market size.
Legal Scrutiny Intensifies Across New York
New York has aggressively pursued regulatory restrictions against Kalshi through multiple state and local fronts. In July, a federal judge denied Kalshi’s request for a preliminary injunction against state regulators. Following a Second Circuit judge’s refusal to intervene, New York Attorney General Letitia James sued the company, seeking at least $36 billion in damages.
On November 2, James filed a separate petition to compel Kalshi to comply with a September 25 subpoena regarding its marketing practices and market-making arrangements. The petition demands evidence of advertising, influencer promotions, internal marketing policies, proprietary trading, and incentive programs. James cited concerns that Kalshi misleads customers by claiming it is not the house while its internal trading arm, Kalshi Trading, generates substantial profits. Kalshi was asked to respond by November 12.
Additional pressure comes from the New York State Gaming Commission, which filed an October petition seeking records on sports-event contracts, advertising, users under 21, and corporate structure. The New York City Council launched an investigation in August into the marketing practices of Kalshi and three other prediction markets.
Financial Stakes in the Countrys Financial Capital
If New York successfully blocks access, the implications for the industry will be massive. The state serves as the country’s financial capital, where most prediction market operators and market makers, including Kalshi, maintain their headquarters. New York consistently ranks among the top three states for traditional equity and options retail trading by funded accounts and transaction volume.
The state also hosts the nation’s largest sports betting market, where residents consistently wager over $2 billion per month and generated a record betting handle of $26.3 billion last year. New York taxes sports betting revenue at 51%, collecting over $1.3 billion in taxes last year from the $2.55 billion generated by nine licensed sportsbooks.
Kalshi spokesperson Elisabeth Diana criticized the state’s legal actions in July as political theater, stating that states cannot shut down a federally licensed exchange and that such moves would drive New Yorkers offshore. Meanwhile, the Commodity Futures Trading Commission has backed Kalshi’s position on federal jurisdiction and sued New York, issuing an emergency order in July directing the exchange to continue operating under federal derivatives law regardless of state court orders.
Second Circuit Denies Injunction Motions Filed by Kalshi and Coinbase
What prompted the latest legal setback for Kalshi?
The Second Circuit denied motions for an injunction pending appeal filed by Kalshi and Coinbase on Tuesday, ruling that the companies failed to show an injunction is warranted.
Which platforms have already exited Connecticut?
ProphetX, Gemini, and Webull pulled out of Connecticut after the state issued cease-and-desist letters in September.
How much does New York tax sports betting revenue?
New York taxes sports betting revenue at 51%, collecting over $1.3 billion in taxes last year from the $2.55 billion generated by nine licensed sportsbooks.
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