The State of New York filed a lawsuit against New York City-based Kalshi on Friday that could expose the company to at least $36 billion in claimed damages and other relief. The state alleged that Kalshi is illegally operating a gambling platform.
The massive amount could come in the form of civil penalties, the forfeiture of allegedly illegal gains, and restitution to New Yorkers who lost money on Kalshi, as most users reportedly do. Thirty-six billion dollars is close to the roughly $40 billion valuation Kalshi reportedly discussed in recent investment talks. Donald Trump Jr., the president’s son, serves as a strategic adviser and received an equity stake in the company.
Meanwhile, Kalshi claims its stock-market-style sports betting product is legal under federal law and that New York’s gambling laws don’t apply. The CFTC—the federal regulator of Kalshi’s derivatives exchange and, in my view, sometimes more of a publicist for prediction markets—has strongly supported Kalshi’s federal-preemption argument in court.
“Altogether, allowing New York to enforce its gambling laws against CFTC-regulated (entities) has the potential for a single state to bring entire federally regulated markets to the brink of destruction,” the CFTC, which is currently operating with only one sitting commissioner, wrote in a court filing.
The lawsuit, like others across the country against Kalshi, is high stakes and full of courtroom (or at least courtdocs) drama. Netflix barely scratched the surface here with its recent short documentary about prediction markets, so there could be other film projects in the pipeline as the legal dust settles, potentially after a U.S. Supreme Court ruling. Ironically, the high court ruled on sports betting just eight years ago in what proponents of gambling called a states’ rights issue.
Since the PASPA ruling, New York has become the nation’s largest legal sports betting market. As public sentiment around legal betting sours—a July 2026 Siena poll found New Yorkers considered online sports gambling bad for the state by 39% to 22%—Empire State elected officials are starting to speak more about the social costs. A proposed set of state rules would add some layers of guardrails but would still depend heavily on sportsbooks to identify harmful behavior and intervene with their users. When I not long ago talked to Assemblymember Phil Steck, who supports efforts to add regulation, he said that the state would probably have been better off without legal online betting. No one in New York, at least that I’m aware of, is ready to roll the dice on a bill to delegalize betting apps, as is the case in Ohio. It’s politically risky, and the New York Legislature appears to believe that the state can be the gold standard for betting regulation.
Despite a modest proposal from the state, which taxes the industry’s revenue at 51% and is arguably its partner, the top sportsbooks don’t support New York’s attempt to update its regulations. It’s “a solution in search of a problem,” as the betting industry has argued.
In its Kalshi lawsuit announcement, New York underscored the most basic of all gambling addiction prevention laws: the legal gambling age. The sports betting industry typically doesn’t take issue with the legal age of 21. Many people younger than this don’t have a lot of money, and daily fantasy sports gambling, a potential precursor to traditional betting, is legal for 18-year-olds.
Prediction markets found an opportunity, targeting these legal adults but not-yet-legal full-on gamblers. This is a central ethical justification for New York’s lawsuit against Kalshi.
“Kalshi’s prediction markets are also available to users between the ages of 18-20, even though New York law requires a person to be at least 21 years old to participate in mobile sports betting,” the press release stated. “Exposing young people to online gambling can have damaging effects on their mental and financial well-being. Recent research has shown that gambling among young people is associated with psychological distress, financial difficulties, and increased risk of gambling-related harms in adulthood.”
It’s actually been long established that gambling when you’re young is associated with a substantially higher risk of developing a problem with the activity later in life. But 21 is not a scientifically demonstrated neurological dividing line that makes online gambling safe. Some addiction advocates argue for a minimum age of 25, an age that may be closer to when the brain is fully developed. There are no bills anywhere in the country that I’m aware of to raise the legal online sports betting age to 25. Still, it’s a worthwhile discussion for policymakers looking at prevention.
In my view, New York can legitimately argue that allowing 18-to-20-year-olds onto Kalshi creates additional risk without presenting 21 as a point at which online gambling becomes significantly safer. Neither 18, 21, nor even 25 represents a biological safety point. Product design features, 24/7 accessibility, and promotional practices can create extreme risks for users well beyond any of those ages.
What should be addressed is the design of sports betting apps, whether a traditional, house-banked platform or a prediction market. Legislation like the SAFE Bet Act, which seeks to address slot-machine-style microbetting, is a good starting point. The bill would create minimum federal standards that could help New York and other states more effectively prevent gambling-related harm.
