The State of New York has filed a $36 billion lawsuit against Kalshi, claiming that it is operating an illegal gambling operation through its prediction markets. New York Attorney General Letitia James is seeking to prevent Kalshi from offering sports-related prediction markets without the appropriate gambling license, alongside imposing financial penalties for alleged unlicensed activities. The case brings to light ongoing tensions between state regulations on gambling and federal laws governing prediction markets. The outcome may hinge on whether the U.S. Supreme Court ultimately determines that these prediction markets constitute gambling and the extent of federal power in regulating them across states.

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New York files $36 billion lawsuit against Kalshi, alleging it’s running an “illegal gambling operation”

Published August 2, 2026 10:58 AM

The battle between sports betting and prediction markets continues to play out in courts throughout the country. It feels inevitable that, after thousands of lawyers have made enough money to buy a third home, the issue will be resolved by the nine justices of the U.S. Supreme Court.

The fight comes down to the never-ending tug of war over states’ rights. Gambling, as the Supreme Court determined when opening the bet! bet! bet! floodgates in 2018, is a subject for the 50 states to handle without interference from the federal government. Prediction markets, in contrast, are regulated by federal law, allowing those markets to offer what amounts to gambling in all 50 states.

The latest battle will unfold in New York, where attorney general Letitia James has sued Kalshi for running an “illegal gambling operation.” In addition to seeking an order preventing Kalshi from offering sports-related prediction markets without a gambling license, New York wants at least $36 billion in financial penalties based on the money Kalshi has made from offering sports gambling and a $100,000 fine for each instance of attempting to offer unlicensed sports wagering.

The Kalshis and Polymarkets of the world will claim that prediction markets based on sporting events aren’t gambling, but no reasonable person would ever buy that. The real question is whether the federal authorization of prediction markets based on sports violates the rights of the states to decide whether and to what extent it will allow its citizens to bet on sports.

Which is ironic, to say the least. It was the federal government’s effort to prevent states from offering sports betting that set the stage for the Supreme Court’s decision that the federal government was overreaching by preventing it. Now, the federal government may be overreaching by allowing it.

The New York case and many others like it will continue to unfold until the Supreme Court finally agrees to take up the fundamental question of whether sports-related prediction markets constitute gambling (they do) and whether the federal government has the power to introduce gambling-based prediction markets into all 50 states, even if one or more (or all) of them don’t want it.

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New York files $36 billion lawsuit against Kalshi, alleging it's running an "illegal gambling operation"

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