Kalshi faces dual legal threats from Nevada and New York as prediction market legality is challenged

Last month, I wrote about the tug-of-war between the Trump administration and the states over prediction markets. Kalshi, one of the largest U.S. prediction market companies, had just won a favorable ruling from a federal court in Minnesota with the help of a key federal financial regulator. Since then, things have escalated dramatically for the prediction market industry on multiple fronts.

Nevada: A Broken Agreement

Nevada, which has extensive experience with gambling regulation, had appeared to strike a bargain with Kalshi earlier this year by getting it to agree to a geofencing restriction. In exchange for blocking people within the Silver State from accessing its markets, the state agreed to drop its ongoing case against the company.

That agreement fell apart last week after investigators for the Nevada Gaming Control Board were able to circumvent the geofencing services used by Kalshi.

Under the terms of the agreement, Kalshi agreed to pay the state $120,000 per day if it failed to implement a geofence by August 12. The company instead lashed out at Nevada regulators by accusing them of providing "falsified information (breaking federal law) to hunt for a loophole and manufacture another legal grievance" against Kalshi.

"This is not the behavior of a regulator trying to protect consumers—it is a vindictive waste of taxpayer dollars at the bidding of casinos," Rick Heaslip, Kalshi's general counsel, claimed on Twitter last week.

The Nevada Gaming Control Board was unamused, to say the least.

"Kalshi's accusations are baseless, and they cannot obscure the fact that Kalshi missed its agreed-upon deadline to comply with Nevada law," the board said in a statement. "Kalshi's consistent failures to comply with the court orders left the board with no other choice but to advise the court of Kalshi's noncompliance."

That could open the door to more punitive sanctions against the company.

New York: A Lawsuit Alleging Illegal Gambling

An even greater legal threat emerged in New York after state officials filed a lawsuit against Kalshi on July 31 for allegedly violating the state's gambling laws.

State law requires sports-betting companies to obtain a license from the state gaming commission and pay taxes on their winnings. New York also alleged that Kalshi violated the state's age limit for sports betting by allowing 18, 19, and 20-year-olds to place bets on its marketplaces.

"No matter what they call themselves, prediction markets like Kalshi are gambling platforms, plain and simple," New York Attorney General Letitia James said in a statement announcing the lawsuit. "By ignoring our laws, Kalshi is running an illegal operation and harming New Yorkers in the process. We are taking them to court to uphold our laws and protect New Yorkers."

How Kalshi's Sports Contracts Work

Kalshi first announced that it would take bets on sports events in January 2025, the New York lawsuit noted, and advertised its product as allowing users to "view live sports (and bet)."

In practical terms, a Kalshi "sports contract" is functionally no different than a bet to the average consumer. A customer places a wager in the form of purchasing sports contracts on a binary outcome, ranging from whether the Los Angeles Dodgers will win the 2026 World Series to whether Shohei Ohtani will hit a home run during a specific game. If the wager is correct, the bettor receives a larger sum payment.

The principal difference between a prediction market and a traditional sportsbook is that the counterparty for the wager isn't the company itself, but other bettors who are buying and selling "event contracts." While sportsbooks derive their profit from losing bets by their customers, Kalshi and other prediction markets instead get their revenue from transaction fees for each wager placed.

Escalation of Legal Action

New York state officials first instructed Kalshi to cease and desist its unlicensed sports gambling operation in October 2025. Three days later, Kalshi sued the state to obtain a preliminary injunction that would block New York from enforcing its demands. A federal district court in Manhattan denied those motions last month.

On July 31, the state escalated its war by filing its own lawsuit that seeks to recoup all profits from the alleged illegal operation.