New York sues Kalshi over sports contracts in direct state challenge

The New York attorney general's office filed suit against Kalshi, alleging that the platform's event contracts on sporting outcomes constitute illegal gambling under state law — a filing that, if it proceeds on the merits, will force a federal court to say directly what the Sixth Circuit left open: whether a CFTC-registered exchange can be sued into compliance by a state that never agreed to be preempted.

Wisconsin's attorney general Josh Kaul has moved in the same direction, raising the same core theory in a separate action. Two states, filing independently, reaching the same legal conclusion about the same platform within the same window is not coincidence. It is a coordinated theory of the case, even without formal coordination.

The theory runs like this. Kalshi holds a Designated Contract Market license from the CFTC. It has argued, consistently, that this federal registration preempts state gambling law under the Supremacy Clause — that the Commodity Exchange Act occupies the field and state attorneys general simply lack jurisdiction to act. The Sixth Circuit, ruling against Kalshi on Tennessee's enforcement action, did not fully resolve the preemption question. It held that Tennessee could enforce its law. It did not hold that the CFTC's regulatory authority was subordinate. That gap is what New York and Wisconsin are now walking through.

The CFTC's own posture makes this harder to read. The Commission has submitted two rulemakings to the White House Office of Information and Regulatory Affairs — one that would expand the definition of a swap to cover event contracts, and one that would explicitly exclude casino-style gaming products from DCM listing. Both proposals are under review. Neither is final. A regulator that is still writing the definitions has not yet claimed the field, and a field that has not been claimed cannot preempt a state from acting in it.

I have watched preemption arguments collapse at precisely this point before. The doctrine requires that the federal framework be operative and comprehensive — not aspirational. The CFTC's rulemaking posture, as of this filing, is aspirational. It is asking the White House to let it occupy ground it does not yet hold.

Kalshi's counterargument will center on the text of the Commodity Exchange Act and the DCM designation itself, which carries affirmative federal authorization. That is a serious argument. The act does grant DCMs significant protection from state interference. The question is whether that protection extends to contracts that the CFTC's own pending rulemaking may not have authorized the DCM to list in the first place — which is the logic embedded in the casino-products exclusion proposal.

If the agency is proposing to prohibit DCMs from listing gaming-style contracts, the implicit concession is that some DCMs may currently be listing them without clear authorization. Kalshi has acknowledged processing sports betting volume. The CFTC has opened scrutiny on that volume. A platform defending federal preemption while the federal regulator is simultaneously questioning whether those contracts should exist presents a difficult position in any courtroom.