New York and Polymarket Sued Each Other, Then the Sixth Circuit Ruled Against Kalshi

New York sued Polymarket in Manhattan state court on September 24 and Polymarket sued back the same afternoon in federal court, and a day later the Sixth Circuit ruled unanimously that Ohio and Tennessee can regulate Kalshi's sports contracts under state gambling law. Nineteen states now have live litigation over event-contract venues. Who sets the rules for a product that did $51 billion in volume in 2025 is now headed somewhere neither side controls: the Supreme Court.

The state's case, and the venue's answer

Attorney General Letitia James and Governor Kathy Hochul announced the suit against QCX LLC d/b/a Polymarket US on September 24, per the Attorney General's press release. The state's position is that Polymarket's prediction market meets the legal definition of gambling, that it has operated without a New York State Gaming Commission license since its December 2025 US relaunch, and that it let users as young as 18 trade against a state minimum of 21 for mobile sports betting. The complaint asks a court to stop the operation, impose fines, forfeit illegal gains and pay restitution to users.

Polymarket's answer came hours later, filed in the Southern District of New York as case 26-cv-8345, QCX LLC v. James. The company argues the Commodity Futures Trading Commission holds exclusive authority over its markets and that New York's action is "an extraordinary assertion of state power squarely foreclosed by federal law." This is the same play New York ran against Kalshi on July 31, a suit seeking $36 billion per SBC Americas. What changed this week is that the venues are no longer waiting to be sued.

The Sixth Circuit moves the law, not just the rhetoric

On September 25 a unanimous three-judge panel of the Sixth Circuit held that Kalshi's sports-event contracts do not satisfy the statutory definition of a swap under the Commodity Exchange Act, and that even if they did, the Act neither expressly nor impliedly preempts Ohio's or Tennessee's gambling laws. Senior Judge Julia Smith Gibbons wrote the opinion in the consolidated cases KalshiEX LLC v. Schuler, No. 26-3196, and KalshiEX LLC v. Orgel, No. 26-5235. The panel affirmed Ohio's denial of Kalshi's preliminary injunction and vacated the Tennessee injunction that had blocked enforcement.

We broke down how those markets price against traditional sportsbooks in an article on NFL Prediction Markets Edge Out Sportsbooks on Spreads as Legal Battle Continues, and the legal backdrop behind them. The market share behind this fight is why it matters. Sports contracts have made up roughly 80 percent of Kalshi's volume since July 2024, per the DLA Piper litigation tracker published September 2, and prediction markets generated $51 billion in volume in 2025, a figure Bernstein Research estimated could reach $240 billion by the end of 2026. A ruling that most of that activity is state-regulable gambling converts a federally registered business into one that needs state licenses, state taxes and state age limits in every state that chooses to press.

The appellate courts now disagree with each other in writing. The Third Circuit sided with Kalshi against New Jersey in April. The Ninth Circuit sided with Nevada on August 28, holding that the substance of the contracts is sports gambling regardless of what they are called. The Sixth Circuit has now done the same for Ohio and Tennessee. New Jersey petitioned the Supreme Court on September 2 to review the Third Circuit's ruling, and Kalshi has asked the Ninth Circuit for en banc rehearing. The CFTC has sued nine states to defend exclusive federal authority, per CNBC.

What the venues' own markets say about their legal risk

Neither venue lists a headline market on its own litigation docket, a structure note in itself. The nearest readable instrument is the ordinary sports book both were still running at full size. On September 28 at 08:00 UTC, Kalshi's Philadelphia at Chicago NFL game market traded at 0.66 for Philadelphia against 0.34 to 0.35 for Chicago, with $2.60 million of volume and $2.43 million of open interest on the Philadelphia side, per the Kalshi public trade API. Polymarket priced the same game at 0.655 versus 0.345 with a one-cent spread, $999,920 of cumulative volume and $876,837 of liquidity, per the Gamma API and CLOB midpoint. A one-cent venue divergence on a two-outcome market with seven figures behind it says the trading public is behaving as if these markets will be here through the season.

The Fed complex traded through the same week without a legal-discount wink. Kalshi's December 2027 contract pricing a fed funds upper bound above 5.75 percent stood bid at 0.10 against a 0.92 ask in Monday September 28 morning trading, effectively dead, while the actual upper bound sits at 4.00 percent per FRED series DFEDTARU and the 2-year Treasury yield closed September 24 at 4.87 percent per DGS2. As The Fed Hiked. Now the Rate Markets Are Pricing Another One. laid out, rate contracts price policy, not litigation: the exposure the courts are reaching sits in the sports book, where the volume is.

Resolutions

The desk's track-record ledger had no markets past their expected resolution this run, so there are no settled rows to report. The markets covered in recent desk pieces, including the October Fed hike contract and the December shutdown contract, remain open inside their windows, including the December shutdown contract tracked in October Is Dead: Shutdown Odds Move to December on Kalshi. The two litigation questions that matter, how the Sixth and Ninth Circuit rulings are applied and whether the Supreme Court takes the New Jersey petition, resolve on court dockets rather than on an exchange, and the desk will file them when they do.

The dated items to watch are concrete. Kalshi's en banc petition is pending at the Ninth Circuit. New Jersey's certiorari petition, filed September 2, awaits the Court's conference calendar. The CFTC's Rule 40.11 rulemaking on event contracts, pending finalization after its comment period per the DLA Piper tracker, would reshape what contracts a designated contract market may list regardless of how the courts split. In New York, both suits are at the earliest procedural stage in courts five blocks apart.

The through-line is simple. The fastest-growing corner of American betting ran for a year on the assumption that one federal agency's blessing covered all fifty states. Two circuits have now rejected that in writing, a third has affirmed it, and the volume riding on the difference is large enough that the Supreme Court rarely leaves a split this clean unresolved for long.

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