Product5 publishers3 min readPublished
New York's lawsuit tests whether Polymarket needs a state gambling license
New York Attorney General Letitia James sued Polymarket as an unlicensed gambling business, the state's fourth such case, and Polymarket countersued within hours. Platforms are now setting age limits and state-by-state access while courts decide whether states or the CFTC govern prediction markets.
The Product Desk · Product desk
What happened
- New York's complaint asks for a court order blocking Polymarket, plus fines, forfeiture of illegal gains and restitution to users.
- Polymarket's own complaint says the state has no business bringing an enforcement action because the CFTC oversees the company's US operations.
- Appeals courts have split: a 3rd Circuit panel sided with the CFTC over New Jersey, and the 9th Circuit backed Nevada against Kalshi last month.
- The US Supreme Court was recently asked to weigh in on whether state gaming law or federal jurisdiction governs these markets.
- CFTC Chairman Michael Selig has been suing states that try to take action against prediction market platforms.
Compiled by The Product DeskSomething wrong?How this is made
Why it matters
- cost If New York wins, restitution and forfeiture of gains put a price on trading already done in the state, on top of the loss of access going forward.
- constraint Until a higher court settles it, access is decided circuit by circuit, so a platform cannot run a single national rulebook for who may trade what.
- decision Because crypto exchanges were sued on the same theory, any firm offering event contracts to New Yorkers has to choose between seeking a state gaming license and litigating federal preemption.
Picture a 19-year-old in New York buying a contract on a sports result. Most prediction markets require users to be over 18. In many states the minimum age for sports betting is 21 [12]. New York's suit argues that the platforms allow underage betting [13], and Governor Kathy Hochul opened with that point. "By running an unlicensed gambling operation, Polymarket has done more than just knowingly violate state law, they have put New Yorkers at risk, especially those underage who are most vulnerable to problem gaming," she said [7].
What the platforms pitch is an exchange. They say consumers trade against other consumers, as on a stock market, and the operator takes only a fee on trades [14]. What users do, in the Associated Press's description, is place wagers on sports, weather, elections and technology [20]. New York's case rests on Polymarket never getting a state gaming license for any of it [3]. None of the reporting says how many Polymarket users are in New York or how many are under 21.
Polymarket's public answer leans on its New York roots. Neal Kumar, the company's chief legal officer, said it "now has more than 350 employees here" [9]. "While the AG's decision to copy/paste a recycled lawsuit is disappointing, we'll fight for our users," Kumar said [8]. He has a point about the recycling. James sued Coinbase Financial Markets and Gemini Titan in April and Kalshi in July [10], and the AP reported that those suits used a similar argument [21]. Polymarket's own complaint calls New York's move "an extraordinary assertion of state power squarely foreclosed by federal law" [6].
In my view, the defensible move for a platform is a 21 age floor on sports contracts in states that are suing. The tradeoff is the 18-to-20 users in those states. If the courts end up siding with the CFTC, the platform will have given them up to satisfy a rule it never had to follow.
For the compliance lead who has to ship something on Monday, the decision fits a 2x2. The first axis is the state's posture. At one end is a state actively suing, as New York now is against four businesses [11]. At the other is a state inside a circuit that ruled for the CFTC, as New Jersey is [17]. The second axis is overlap with licensed gambling. High overlap means sports contracts and users aged 18 to 20, the three birth years between the common age floor and the betting age [1]. Low overlap is everything else. The forcing function is to plan as if the 9th Circuit's reading, the one that let Nevada regulate Kalshi, became the national rule [17]. The high-overlap box in a suing state fails that test first, and it is the box New York's complaint describes [13].
What to watch
- Whether the Supreme Court agrees to hear the state-versus-CFTC dispute, and which case it takes.
- Whether the CFTC intervenes in New York's case or sues the state, as it has done with other states.
- Whether the state court grants New York an order blocking Polymarket while the jurisdiction question is still open.