New York Sues Polymarket as Fight Over Who Regulates Prediction Markets Intensifies

New York Attorney General Letitia James sued Polymarket on Thursday, accusing the prediction-market company of operating an illegal gambling business and escalating a nationwide fight over who has authority to regulate markets tied to sports and other real-world events.

The lawsuit, filed September 24 in Manhattan, seeks to stop Polymarket from operating in New York without a gambling license. The state is also seeking civil penalties, restitution, and forfeiture of allegedly illegal gains. Polymarket disputes the allegations and maintains that its markets are federally regulated.

The case turns on a deceptively simple question: when someone puts money on the outcome of a sporting event through a prediction market, is that gambling regulated by the state or a financial contract regulated by the federal government?

New York says Polymarket’s sports contracts are wagers. The company and the Commodity Futures Trading Commission contend that federally regulated event contracts fall under the Commodity Exchange Act and can operate through national derivatives markets without separate state gambling licenses.

James has already pursued Kalshi, Coinbase Financial Markets, and Gemini Titan over similar products. The Polymarket lawsuit brings another major platform into a legal conflict that is already dividing federal courts.

Prediction markets allow users to buy positions based on whether a future event will occur. A contract might ask whether a team will win a game, whether a candidate will win an election, or whether an economic indicator will reach a particular level. Prices move as traders change their expectations, and the contract pays based on the final outcome.

That structure is central to the industry’s legal position. Companies such as Polymarket and Kalshi argue that their contracts function as derivatives rather than conventional sportsbook wagers and therefore belong within the federal commodities system.

New York focuses more heavily on what the transactions accomplish in practice.

The state points to sports contracts that closely resemble traditional bets, including one identified in the complaint asking whether the Los Angeles Dodgers would defeat the New York Mets by more than 1.5 runs. James’ office argues that putting money at risk on an uncertain sporting outcome is gambling regardless of the label placed on the transaction.

Polymarket’s U.S. operations rely on a federally regulated market structure. The company returned to the U.S. market in December 2025 following CFTC approval and offers contracts tied to sports, elections, economics, entertainment, and other events.

The CFTC has strongly supported the industry’s federal-preemption argument. The agency says Congress created a national system for derivatives markets and gave it exclusive authority over event contracts traded on federally registered exchanges. It has sued New York and several other states seeking to prevent them from applying gambling laws to those markets.

Federal preemption determines when federal law displaces state regulation. Prediction-market companies say the Commodity Exchange Act occupies this area for federally traded event contracts, while states argue that gambling has traditionally fallen within their police powers and that Congress never clearly transferred authority over sports betting to the CFTC.

Federal appeals courts have now reached opposite conclusions.

In April, the U.S. Court of Appeals for the Third Circuit sided with Kalshi in a dispute with New Jersey. The court concluded that sports-event contracts traded on a CFTC-regulated market likely qualified as federally protected swaps and that the Commodity Exchange Act preempted New Jersey’s attempt to regulate them as gambling.

The Ninth Circuit went the other way in August. In a case involving Nevada, the court held that Kalshi had not shown that federal commodities law displaced the state’s authority to require a gaming license for sports-related contracts. The panel emphasized the states’ longstanding role in gambling regulation and rejected the idea that federal derivatives law had transformed the CFTC into a national gambling regulator.

That split creates a practical problem for the industry. A sports contract may receive federal protection from state gambling laws in one part of the country while remaining subject to state licensing requirements elsewhere.

New Jersey has already asked the U.S. Supreme Court to resolve the conflict. Its petition argues that Congress did not eliminate state authority over sports betting when it expanded federal derivatives regulation through the Dodd-Frank Act. The Supreme Court has not yet decided whether it will hear the case.

New York has also scored an early victory in its own litigation against Kalshi.

In July, U.S. District Judge Analisa Torres refused to block New York from enforcing its gambling laws against the company, finding that Kalshi had not shown a sufficient likelihood that federal law preempted the state’s authority. She also pointed to New York’s interests in consumer protection, sports integrity, and problem-gambling regulation.

The Polymarket case raises many of the same concerns. New York says the company operates without a license from the New York State Gaming Commission and does not follow requirements imposed on conventional sportsbooks, including state age restrictions and gambling taxes.

The state also objects to Polymarket allowing users between 18 and 20 years old to participate even though New York requires users of mobile sportsbooks to be at least 21. James argues that licensing requirements are designed not only to collect revenue but also to address problem gambling, protect consumers, and safeguard the integrity of sports wagering.

The industry responds that forcing federally regulated platforms to obtain separate licenses in dozens of states would undermine the national system Congress created for derivatives trading.

The debate becomes more complicated because prediction markets extend well beyond sports. Platforms offer contracts involving inflation, interest rates, elections, weather, entertainment awards, and geopolitical events. Some of those products resemble conventional financial forecasting or risk hedging more closely than traditional gambling.

The CFTC argues that event markets can provide useful price discovery and help businesses or individuals hedge event-driven risks. States have concentrated much of their enforcement on sports products that closely resemble bets already offered by licensed sportsbooks.

Congress itself recognized the overlap when it amended the Commodity Exchange Act through Dodd-Frank. Federal law gives the CFTC authority to prohibit certain event contracts involving activities such as gaming when the agency determines they are contrary to the public interest.

Both sides draw support from that provision.

Prediction-market operators say Congress expressly placed gaming-related event contracts within the CFTC’s regulatory framework. States argue that Congress knew how to address gaming but never expressly stripped states of their traditional authority to regulate gambling within their borders.

The disagreement now has significant economic consequences. Prediction markets expanded rapidly after the 2024 presidential election, and Polymarket is reportedly valued at more than $20 billion. Sports contracts have become an increasingly important part of the industry’s growth.

If states ultimately prevail, prediction-market operators offering sports contracts could have to obtain gaming licenses, follow local age restrictions, pay gambling taxes, and comply with state-specific limits on permissible wagers.

A victory for the federal-preemption theory could produce a very different system. Federally registered platforms could operate under a national CFTC framework even when similar transactions would otherwise violate state gambling laws.

New York’s lawsuit asks a state court to declare Polymarket’s operations unlawful, stop the company from continuing without a gaming license, and order restitution, forfeiture, and substantial civil penalties. Polymarket maintains that its products fall within federal commodities regulation and says it remains willing to engage with state officials.

The Polymarket case will not settle the national dispute on its own. The conflict has already reached multiple federal courts, produced opposing appellate rulings, and generated a pending request for Supreme Court review.

What began as a debate over a new kind of trading platform has become a much larger fight over regulatory authority. States see sports prediction markets as gambling businesses subject to traditional gaming laws, while the CFTC and the industry see them as federally regulated financial contracts.

Until the courts resolve that divide, the same transaction can still be treated as a derivative in one jurisdiction and an illegal sports bet in another.