Prediction Markets Weekly Roundup: CFTC Escalates New York Fight as State Challenges Mount
Kalshi suffered setbacks in Connecticut and Washington during a week that also brought new lawsuits, football contract filings and further industry expansion.
New York continued to be the center of prediction market litigation this week, headlined by an extraordinary Commodity Futures Trading Commission (CFTC) intervention in the Kalshi battle, a New York City Council probe into operators, and Novig being denied immediate relief in its first legal challenge.
Elsewhere, Kalshi began facing geofencing restrictions in Michigan and Nevada, Novig introduced an industry-first 21-and-over trading requirement, and Baltimore became the latest jurisdiction to take prediction markets to court.
Here are the top prediction market developments this week.
Litigation Expands in Multiple States, First Underdog Suit
CFTC Intervention Escalates New York Fight
The CFTC escalated Kalshi’s New York dispute this week by issuing an emergency order directing the exchange to continue operating normally even if New York obtains an order that could effectively shut it down.
Kalshi quickly cited the order in its Second Circuit appeal, arguing it demonstrates an “irreconcilable conflict” between federal and state law and strengthens its request for an injunction pending appeal.
New York responded that the order is irrelevant to the appeal because Attorney General Letitia James is not a defendant in that case and argued the CFTC cannot create a federal-state conflict through its interpretation of the Commodity Exchange Act (CEA).
The CFTC separately submitted the emergency order as supplemental authority in its own lawsuit against New York.
Meanwhile, a federal judge denied Novig’s request for a temporary restraining order against the state. Judge Colleen McMahon said she would not “undermine” Judge Analisa Torres’ earlier Kalshi ruling without full briefing, while stressing she had not decided the merits. Oral arguments on Novig’s preliminary injunction request are scheduled for Sept. 11.
New York City also entered the picture by opening a separate investigation into Polymarket, Kalshi, Coinbase and Gemini Titan over advertising, influencer marketing and possible targeting of minors.
Connecticut Rejects Kalshi’s Legal Arguments
Kalshi suffered a major setback in Connecticut.
On Monday, U.S. District Judge Vernon D. Oliver denied the company’s request for a preliminary injunction against state regulators.
Oliver ruled that Kalshi’s sports event contracts do not qualify as swaps under the CEA and rejected its federal preemption argument. The judge wrote that, despite Kalshi’s different descriptions of the products, “at bottom, they are sports wagers.”
The same judge separately denied Coinbase’s preliminary injunction request in its related case.
Washington Orders Kalshi to Geofence
Washington also finalized a preliminary injunction against Kalshi, finding that the CEA does not preempt state gambling laws.
King County Superior Court Judge John McHale rejected Kalshi’s argument that federal “impartial access” requirements prevent state-by-state restrictions. He concluded that compliance with Washington law would not prevent Kalshi from complying with federal regulations.
McHale became the third judge in roughly a week to reject Kalshi’s “impartial access” argument, following Judge Oliver in Connecticut and Judge Robert Shelby in Utah.
The Washington order requires Kalshi to stop offering contracts involving sports, elections, politics, entertainment, culture, tech and science and “mentions” in the state. Commodities, climate, economics and finance products are excluded.
Kalshi must implement initial geofencing by Aug. 19 and a GeoComply solution by Sept. 2. Failure to meet the latter deadline could trigger penalties of $120,000 per day.
FlightAware Drops Kalshi Lawsuit
FlightAware filed a lawsuit against Kalshi but voluntarily dismissed it a day later.
The flight-tracking company had accused Kalshi of improperly using its data and trademark for flight-cancellation markets. It dismissed the case without prejudice around the same time Kalshi removed FlightAware’s name from its contract verification language.
Aristotle Sues Underdog
Aristotle sued Underdog Sports, CEO Jeremy Levine and several related entities in Delaware Chancery Court on Aug. 12, Levine revealed on X.
The full complaint is not yet publicly available, but the dispute appears tied to Underdog’s pending $1.3 billion sale to IG Group. Aristotle received Underdog equity as part of Underdog’s acquisition of its prediction market exchange and clearinghouse earlier this year, and is reportedly seeking a larger return from the IG transaction.
Levine said the lawsuit includes allegations of fraud, conspiracy and other misconduct, which he denied. He accused Aristotle of trying to use the pending transaction to extract additional money and said he does not expect the lawsuit to derail the IG deal.
Baltimore Targets Prediction Markets
Baltimore became the first city to sue prediction markets.
The city filed a lawsuit against Kalshi, Robinhood, Webull and Coinbase, alleging they are offering unlicensed sports wagering and violating the city’s Consumer Protection Ordinance. Baltimore is seeking an injunction, disgorgement, restitution and civil penalties.
The lawsuit expands Baltimore’s recent gambling enforcement activity, which has also included actions against sweepstakes operators and sportsbook companies.
Prediction Market Industry Updates
Kalshi Reaches Nevada, Michigan Geofencing Deadlines
Kalshi met GeoComply implementation deadlines in Michigan and Nevada on Aug. 12, as state litigation increasingly shifts from legal arguments to practical restrictions on customer access.
Michigan has threatened penalties of up to $500,000 per day for noncompliance, while Nevada’s agreement includes potential penalties of $120,000 per day.
The Nevada order appears to be in effect, with gambling industry analyst Dustin Gouker reporting that he was unable to trade on Kalshi while in Nevada.
Washington will now follow with its own Aug. 19 and Sept. 2 deadlines.
Novig Adds Responsible Trading Framework
Novig introduced a responsible trading framework for its federally regulated Ludlow Exchange.
One of the standout announcements was a 21-and-over age requirement, while the national standard for prediction markets is an 18-year-old minimum. Other tools include identity verification, deposit and loss limits, cooling-off periods and self-exclusion.
The framework also restricts “risk-free” marketing and promotions targeted at users under 21. It also includes monitoring for behaviors such as rapid deposit increases and potential loss chasing.
Exchanges Adjust and Expand Contracts
Several prediction market exchanges were busy self-certifying sports event contracts, with a large portion of them football-related.
DraftKings’ Railbird Exchange, operating as DKeX, self-certified nine categories of football contracts covering spreads, totals, player props, game outcomes and season-long markets.
Aristotle and Gemini also filed dozens of contracts, ranging from the NFL to tennis and WNBA.
Fliff, Onyx Seek FCM Registrations
Social sportsbook operators Fliff and Onyx Odds filed applications with the National Futures Association to become futures commission merchants, NFA members and swap firms.
FCM registration would not make either company a prediction market operator. Instead, it would allow them to act as regulated intermediaries capable of accepting customer orders and holding customer funds for derivatives transactions.
Kalshi Partners With Nasdaq
Kalshi signed a multi-year agreement to use Nasdaq’s market surveillance technology.
The system will supplement Kalshi’s existing infrastructure for identifying potential manipulation, insider trading and other suspicious activity and help the exchange report trading data to the CFTC.
The partnership comes as prediction markets face growing scrutiny over trading integrity and potential insider activity.
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