jili tutorial

The Gambling Wire: New York, Polymarket Trade Lawsuits as Prediction Market Fight Grows

By jili tutorial · September 26, 2026

The Gambling Wire: New York, Polymarket Trade Lawsuits as Prediction Market Fight Grows

The legal and regulatory landscape for gambling and prediction markets has never been more volatile. In a single week, New York expanded its crackdown on prediction markets by suing Polymarket, only to face a counter-lawsuit from the company. Meanwhile, Kalshi reportedly geofenced California tribal lands amid a landmark Indian Gaming Regulatory Act (IGRA) case, Massachusetts announced a probe into sportsbooks’ use of artificial intelligence, and MGM Resorts reportedly considered flipping the script on a would-be acquirer.

This article goes beyond the headlines to explain the key lawsuits, the legal arguments at play, the regulatory actions in multiple states, and the broader implications for the future of betting and event contracts. We’ll unpack each development, provide necessary context, and highlight what operators, consumers, and policymakers should watch next.

The Big Story: New York Sues Polymarket, Polymarket Sues New York

The Complaint: New York’s Allegations

New York has filed an illegal gambling lawsuit against Polymarket, the decentralized prediction market platform. This is the state’s second major suit against a prediction market operator in 2025, following a July lawsuit against Kalshi. The core allegation is that Polymarket operates an illegal gambling business without a New York gaming license. The state is seeking:

Additionally, New York points out that Polymarket allows users aged 18 to 20, while New York’s mobile sports betting law requires bettors to be at least 21. This age discrepancy is a key element of the state’s argument that Polymarket is violating state gambling laws.

Polymarket’s Counter-Moves

Polymarket did not simply wait for the case to proceed. The company took two aggressive legal steps:

  1. Removal to Federal Court: Polymarket removed the case from state court to the Southern District of New York (SDNY). The company argues that federal jurisdiction exists because New York’s complaint alleges a Wire Act violation, and because the dispute raises questions about the Commodity Exchange Act (CEA) and the authority of the Commodity Futures Trading Commission (CFTC) over event contracts.

  2. Separate Lawsuit Against New York Officials: Polymarket filed its own suit against New York gaming officials, seeking declaratory and injunctive relief to prevent enforcement of state gambling laws against its federally regulated exchange. The company argues that the CEA grants the CFTC exclusive jurisdiction over its event contracts, thereby preempting state gambling laws.

The Precedent Problem: Kalshi’s Failed Injunction

Polymarket’s preemption argument is not new—and it has already encountered resistance. In July, U.S. District Judge Analisa Torres denied Kalshi’s request for a preliminary injunction in a similar case brought by New York. Judge Torres ruled that Kalshi had not shown that New York’s gambling laws are preempted by the CEA as applied to its sports event contracts. Kalshi has appealed that ruling.

That unfavorable precedent looms large for Polymarket. While the facts differ slightly (Kalshi is a CFTC-regulated exchange, Polymarket uses blockchain and may not be formally regulated), the central question remains: can a state criminalize or restrict event contracts that the CFTC has allowed? The courts will likely decide whether state gambling laws can coexist with federal commodities regulation in this context.

Broader Context: New York’s Multi-Pronged Attack

New York has not limited its enforcement to prediction markets. The state has also sued Coinbase and Gemini over alleged illegal gambling operations. At the same time, the CFTC has separately sued New York—likely over the state’s attempts to block federally regulated event contracts. This web of litigation shows a clear battle line: the state wants to protect its regulated sports betting market and its revenue streams, while federal regulators and platforms argue that event contracts are commodities, not gambling.

Kalshi Geofences California Tribes Amid Blue Lake Case

The Litigation and the Measure

Kalshi, a leading CFTC-regulated prediction market, is currently facing a lawsuit from three California tribes—including the Blue Lake Rancheria. The tribes argue that Kalshi’s sports-event contracts constitute Class III gaming under the Indian Gaming Regulatory Act (IGRA) when accessed on tribal lands. If successful, this would require tribal compacts and state-tribal gaming agreements, effectively banning Kalshi from offering these markets on tribal territory.

During a September 24 status hearing, Kalshi attorney Grant Mainland announced that the company had implemented geofencing around the three tribes involved in the litigation. In other words, Kalshi is now blocking users from accessing sports-event contracts when they are physically within the tribes’ reservation boundaries.

The Tribal Response

Tribal lawyers responded that the geofencing measure does not change their claim of irreparable harm. The tribes argue that the mere existence of these markets—even if temporarily blocked—still violates IGRA and undermines their sovereign rights to operate and regulate gaming on their lands. The geofencing is a stopgap, not a legal fix.

The Ninth Circuit’s Prior Ruling

A week before the hearing, the Ninth Circuit Court of Appeals ruled that the tribes are likely to succeed on their claim that Kalshi’s sports-event contracts constitute Class III gaming when entered into on tribal lands. The appellate court reversed the district court’s dismissal of the IGRA claim and remanded the case for consideration of the remaining preliminary-injunction factors. This suggests the courts are taking tribal sovereignty seriously and may eventually force Kalshi to either obtain tribal compacts or cease offering these products altogether in tribal areas.

Indiana Rejects NCAA College Player Prop Ban

The NCAA’s Request

In January, NCAA President Charlie Baker wrote to the Indiana Gaming Commission requesting a ban on all college player prop betting at licensed sportsbooks. Baker argued that these bets create integrity risks (e.g., players being bribed or pressured to underperform) and contribute to harassment of student-athletes by bettors who lose money.

Indiana’s Decision

On Thursday, the Indiana Gaming Commission voted to reject the NCAA’s request. Commissioners acknowledged the integrity concerns but questioned whether a blanket regulatory ban was the appropriate response. They suggested that lawmakers, rather than the commission, should address the issue through legislation.

The National Trend

Indiana joins a growing list of states that have declined to follow the NCAA’s lead. Earlier this year, Missouri also rejected a similar request, citing the market’s recent launch and insufficient data. Meanwhile, states that have adopted the NCAA’s request include Ohio, Louisiana, Maryland, and Vermont. Legislation to ban college player props failed to advance in New York, New Jersey, and Massachusetts this year.

The debate is far from settled. As more states legalize sports betting, the NCAA continues to push for protections, but many regulators feel that the market can self-correct or that targeted measures (e.g., prohibiting bets on individual player performances in certain sports) might be better than a blanket ban.

Senate Democrats Seek Prediction Market Hearing

The Letter to Chair Tim Scott

All 11 Democrats on the Senate Banking Committee have sent a letter to Chair Tim Scott (R-TN) requesting a public hearing on prediction markets. This follows a Republican-only roundtable held with Kalshi CEO Tarek Mansour, which Democrats criticized as being closed-door and industry-friendly.

The senators argue that the committee has an oversight role as prediction markets expand into securities-linked products. They specifically point out that event contracts tied to corporate performance indicators (e.g., earnings reports, stock price targets) could meet the definition of security-based swaps and thus fall under SEC regulation.

Concerns Raised

The letter highlights three major concerns:

The senators called for a bipartisan, public hearing to examine the sector—not a private roundtable. Chair Scott has not yet responded publicly, but he has previously stated that the Republican meeting covered securities-linked products, investor protections, and regulatory questions Congress may need to address.

Massachusetts to Examine Sportsbooks’ Use of AI

The Catalyst: A New York Times Investigation

The Massachusetts Gaming Commission (MGC) has announced it will examine how licensed sportsbooks use artificial intelligence and machine learning, following a New York Times investigation into DraftKings. The report apparently detailed practices that raised concerns about AI’s role in setting odds, personalizing betting offers, and potentially exploiting problem gamblers.

MGC Chair Jordan Maynard stated that staff will engage with DraftKings to understand the specifics described in the report before deciding whether further action is warranted. The review will also look at AI practices among other licensed operators in Massachusetts.

The Broader AI and Gambling Debate

The MGC is not starting from scratch. Last year, a study commissioned by the commission identified a potential regulatory “governance gap” regarding AI in gambling. That study prompted the creation of an AI task force, which has been examining issues like algorithmic fairness, transparency, and responsible gaming.

The new investigation could lead to new regulations, such as requiring sportsbooks to disclose when AI is used to tailor promotions, or limiting the use of AI to detect and intervene with at-risk players. It also aligns with a broader national trend: lawmakers in several states are scrutinizing how AI influences gambling behavior.

MGM Reportedly Considers People Inc. Bid

The Background: A Sudden Turnaround

MGM Resorts may be about to turn the tables on Barry Diller’s People Inc. (formerly IAC) just one day after the media company abandoned its pursuit of the casino operator. According to the Wall Street Journal, MGM is discussing a potential bid to acquire People Inc. The talks are preliminary, and MGM could decide not to proceed.

People Inc. had been seeking to buy MGM’s outstanding public shares in an $18 billion deal, but withdrew its proposal on Wednesday. People Inc. already owns a 27% stake in MGM. Its portfolio includes media brands such as People and Food & Wine.

Potential Implications

If MGM were to acquire People Inc., it would be a stunning reversal—a casino giant taking over a media conglomerate that had tried to buy it. The deal would give MGM control over media properties that could enhance its marketing and content strategies, but the financial and regulatory hurdles would be immense. The fact that talks are preliminary suggests this is speculative, but it underscores the shifting dynamics in the gaming and media industries.

Iowa Athletes Take Sports Betting Search Case to Eighth Circuit

The Case: Warrantless Geolocation Data Use

A group of current and former Iowa college athletes has asked the Eighth Circuit Court of Appeals to revive a lawsuit challenging investigators’ warrantless use of geolocation data to identify potential sports betting violations. The lawsuit stems from a 2023 investigation in which law enforcement used cellphone location data without obtaining a warrant to find athletes who may have been betting on their own games or using third-party accounts.

A federal judge previously found that the warrantless search violated the athletes’ Fourth Amendment rights but still dismissed the case because the investigators were protected by qualified immunity—a legal doctrine that shields officials from liability unless they violate clearly established rights.

The Arguments

At Thursday’s hearing, the athletes argued that existing Supreme Court precedent (such as Carpenter v. United States) already established that historical digital location data is protected under the Fourth Amendment, so no warrant was needed. The state of Iowa defended the dismissal, questioning whether athletes using other people’s sportsbook accounts had a reasonable expectation of privacy in the first place.

The Eighth Circuit’s decision could have far-reaching implications for how law enforcement handles geolocation data in gambling investigations and beyond.

Prediction Markets Weekly Roundup

CFTC Warns on “Mention Markets”

The CFTC issued a warning that “mention markets”—event contracts on when a public figure will say a specific word or phrase—carry heightened risks of manipulation. Chair Michael Selig told CNBC that the agency has “a lot of concern with these markets,” but declined to say whether it is investigating potential wash trading in Kalshi’s cryptocurrency markets.

Earlier in the week, a quantitative analyst flagged a suspicious pattern: $539 million in 24-hour Ethereum volume against just $3.1 million in open interest. The company said the activity was legitimate, but the CFTC’s caution underscores the regulatory unease.

State and Industry Pressure Grows

Kalshi asked the Seventh Circuit to hear key issues in a separate lawsuit—likely involving the CFTC or a state regulatory dispute. The full scope of litigation is expanding rapidly, as prediction markets become a battleground for federal vs. state authority, consumer protection, and the definition of gambling.

Key Takeaways and What to Watch

Conclusion

The gambling and prediction market landscape is in flux. Legal challenges from states, tribes, and federal agencies are colliding with innovative platforms that argue they are not gambling but regulated financial markets. The coming months will see key court decisions, potential new legislation, and continued regulatory scrutiny. For operators, compliance is more complex than ever; for consumers, the future of these platforms hinges on the outcomes of these battles.