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What’s Riding on the Bet

• New York says Polymarket’s sports event contracts are unlicensed wagers dressed up as financial products.
• Polymarket US operates through a federally regulated CFTC-designated contract market, setting up a direct state-versus-federal jurisdiction fight.
• Federal appeals courts are already divided over the issue, with related petitions now pending before the U.S. Supreme Court.

By Samuel López | USA Herald

New York has opened another front in the rapidly escalating legal war over prediction markets, suing Polymarket on September 24 and alleging that its event contracts amount to illegal, unlicensed gambling.

The case, People of the State of New York v. QCX LLC d/b/a Polymarket US, was filed in New York Supreme Court in Manhattan. The initial NYSCEF petition still listed the index number as unassigned when released by the Attorney General’s office.

The state’s argument is straightforward: calling a wager an “event contract” does not necessarily change what it is. According to Attorney General Letitia James’ petition, Polymarket lets users risk money on uncertain events outside their control — including baseball games, elections and television competitions — with money paid according to the outcome. New York alleges that meets its definition of gambling.

The complaint goes much further than simply accusing Polymarket of lacking a gaming license. It alleges violations of New York’s Constitution, several state gambling statutes, mobile sports-wagering laws and even the federal Wire Act. New York is seeking an injunction blocking unlicensed operations, restitution, disgorgement, penalties equal to three times Polymarket’s alleged gains and potentially $100,000 for each unauthorized offer or attempt to offer sports wagering in New York.

The state also points to age restrictions. Polymarket permits users ages 18 to 20, while New York requires mobile sports bettors to be at least 21. The Attorney General says the company is therefore operating outside safeguards imposed on licensed sportsbooks.

But this lawsuit has a complication that makes it much more important than an ordinary gambling enforcement case.

QCX LLC, doing business as Polymarket US, is listed by the Commodity Futures Trading Commission as a designated contract market, or DCM. The CFTC has repeatedly asserted that federal law gives it exclusive jurisdiction over event contracts traded on federally registered markets. In April, the agency even sued New York itself, seeking to prevent the state from applying its gambling laws to CFTC-regulated prediction markets.

Polymarket says it intends to fight. Chief Legal Officer Neal Kumar said the company had tried to address New York’s concerns directly and added, “We’ll fight for our users.”

Here is where the case becomes especially significant. Federal appellate courts currently disagree about who has the stronger legal claim.

In KalshiEX LLC v. Flaherty, the Third Circuit held in April that Kalshi had demonstrated a reasonable likelihood that the Commodity Exchange Act preempts New Jersey gambling laws when applied to sports-event contracts traded on a CFTC-regulated market.

Then, on August 28, the Ninth Circuit went the other direction in KalshiEX LLC v. Assad, concluding that Kalshi had not shown that federal law preempted Nevada’s gambling regulation of its sports contracts.

That split is already knocking on the Supreme Court’s door. New Jersey filed a certiorari petition in Flaherty v. KalshiEX LLC, No. 26-299, while Robinhood filed Robinhood Derivatives LLC v. Dreitzer, No. 26-338, arising from the Nevada litigation. Responses are due in October.

So, the question underneath New York’s Polymarket lawsuit is considerably larger than whether someone placing money on the Mets is “trading” or “betting.”

It is who gets to decide.

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