New York and Polymarket Clash Over Whether Prediction Contracts Are Gambling or Federal Derivatives

New York attorney general Letitia James has sued Polymarket in Manhattan state court, accusing the prediction market operator of running unlicensed gambling in New York. Polymarket fired back with a federal counterclaim the same day, so the real issue is now familiar to anyone in high-risk payments: who gets to regulate the product, the state gaming board or the federal commodities regime.

1. James says Polymarket’s prediction contracts are gambling because customers can wager money on uncertain outcomes, and that the company does not hold a New York State Gaming Commission license. New York wants the operator blocked from the state, along with fines, profit seizures, and restitution to affected customers.
2. The state’s age argument is straightforward and commercially relevant: Polymarket’s offerings are available to users as young as 18, while New York requires people to be at least 21 to participate in online wagering. State officials also say prediction markets do not offer the same consumer protections as licensed gambling operators.
3. Polymarket’s response is that the Commodity Futures Trading Commission (CFTC) regulates prediction markets at the federal level, which means New York cannot apply its gambling laws on top. Chief legal officer Neal Kumar said the company had tried to negotiate with state officials before the lawsuits were filed, and called the state’s move “an extraordinary assertion of state power squarely foreclosed by federal law.”
4. This is not just a New York problem. The state is already part of a wider campaign against prediction markets: in April, it sued Coinbase and Gemini over alleged unlicensed gambling, and it sued Kalshi in July. Outside New York, Massachusetts and Nevada have already won court rulings restricting platforms like Kalshi.
5. The larger fight is about product classification, and that matters for PSPs, acquirers, and banks that touch these flows. Prediction platforms say they are trading event contracts, not taking bets. State regulators keep saying the distinction is thinner than the industry would like, which is why conflicting rulings across the USA have made the US Supreme Court look increasingly like the eventual referee.