Polymarket and New York Go to Court Over the Future of Prediction Markets

The rapidly expanding prediction-market industry has collided head-on with state gambling law, after New York and Polymarket filed lawsuits against each other in a dispute that could help determine who has authority over a new generation of online event markets.

New York Attorney General Letitia James filed a case in Manhattan state court on Thursday accusing Polymarket of operating an unlicensed gambling business. The state argues that the company’s event contracts amount to gambling because users stake money on uncertain outcomes they cannot control, while Polymarket does not hold a licence from the New York State Gaming Commission.

The dispute matters because prediction markets sit awkwardly between several established financial and regulatory categories. Their basic proposition is straightforward: users buy contracts linked to the outcome of an event, with the value determined by what ultimately happens. Sports have become an important part of the market, but contracts can also cover elections, economic developments and cultural events.

Polymarket, meanwhile, has argued that its markets fall under federal rather than state oversight. Hours after New York brought its case, the company filed its own lawsuit in Manhattan federal court seeking to prevent state officials from regulating its prediction-market business. Polymarket argues that the Commodity Futures Trading Commission (CFTC) has exclusive authority over these markets.

That argument puts the case within a much wider regulatory battle. New York has already brought similar actions against other prediction-market operators, including Kalshi, Coinbase Financial Markets and Gemini Titan. The cases reflect growing tension between state gambling authorities and the federal framework being used to regulate event contracts.

For financial markets, the distinction is significant. If prediction markets are treated as gambling, operators can face state licensing requirements, age restrictions, consumer-protection rules and potentially gambling taxes. If they are treated as financial products, the regulatory architecture is fundamentally different.

The issue also has relevance for Europe’s increasingly complicated digital-finance landscape. European regulators are already debating where emerging financial products should sit within existing frameworks, while the EU’s Markets in Crypto-Assets regime has created a more structured approach to digital assets. EBM’s analysis of MiCA and crypto regulation explores how regulators are attempting to bring fast-moving digital markets within established financial rules.

The distinction between financial innovation and regulated activity is becoming increasingly important across fintech. EBM’s Fintech coverage tracks how new business models are challenging traditional financial-services regulation, while its analysis of EU financial rules and fintech examines the broader tension between regulatory oversight and innovation.

There is also an obvious connection with the digital gambling sector. Prediction markets share some characteristics with betting platforms, while their operators argue that event contracts have a different economic and regulatory structure. EBM previously examined the changing online gambling market in Europe as governments have sought to tighten licensing, consumer protection and enforcement.

Polymarket’s US expansion has made the argument considerably more consequential. The company relaunched in the US in December 2025 after being outside the market for more than three years, following regulatory developments involving the CFTC. It now describes itself as the world’s largest prediction market. Reuters reported that the business was valued at more than $20 billion.

New York’s case also raises questions around age restrictions. The state objects to Polymarket allowing users aged 18 to 20, arguing that New York’s minimum age for mobile sports betting is 21. The attorney general is seeking civil penalties, forfeiture of alleged illegal gains and restitution to customers.

Polymarket has rejected the allegations. Its chief legal officer Neal Kumar said the company had sought to engage with New York officials directly and maintained that it offers fair, transparent and legal markets.

What happens next could therefore reach well beyond Polymarket. The central question is no longer simply whether people should be allowed to bet on future events. It is whether these markets should ultimately be understood as gambling, financial contracts, or something sufficiently new that regulators may need to develop another category altogether.

For an industry growing rapidly across technology, finance and betting, that legal distinction could become one of its most important markets. EBM’s wider crypto and digital-assets coverage looks at the regulatory and commercial forces shaping that broader transformation.