Why Is New York City Investigating Prediction Markets?
The New York City Council has opened an investigation into Kalshi, Polymarket, Coinbase and Gemini Titan over allegations that prediction market platforms used false, deceptive or abusive marketing practices, adding another layer of scrutiny to an industry already facing challenges from state regulators.
The council sent letters to the four companies on Wednesday as part of a review focused partly on marketing directed at younger users. The inquiry does not itself establish wrongdoing, but it could lead to further requests for information or new city legislation governing how prediction markets are advertised to New Yorkers.
“For months, the Council has been looking into issues related to allegations of predatory marketing practices associated with the prediction market industry, which has grown rapidly in New York City,” the council said. “Some of these practices raise serious concerns.”
One area under review involves allegations that Polymarket paid social media creators to film themselves placing staged bets and recording fake wins on replicas of the platform. Polymarket said it looked forward to engaging with the council.
The company has also begun using a third-party consulting firm to oversee content released by promotional partners and has changed the structure of its marketing team.
Why Are Prediction Markets Facing More Regulatory Pressure?
Prediction markets have expanded into a multibillion-dollar business by allowing users to trade contracts tied to political events, economic outcomes, sports and other real-world events. Their rapid growth has created a dispute over whether some products should be treated as federally regulated derivatives or as gambling subject to state law.
Sports-related contracts have become the main point of conflict. Several states argue that contracts tied to sporting events operate like sports betting and should therefore comply with state gaming laws. Prediction market operators have instead argued that their event contracts fall under federal commodities regulation.
Concerns have also expanded beyond gambling rules. In April, New York Gov. Kathy Hochul signed an executive order barring state employees from using confidential government information to trade on prediction markets, addressing the risk that officials could profit from information unavailable to the public.
Coinbase said its prediction market offering complies with applicable law. “Coinbase offers our customers access to federally regulated prediction markets overseen by the CFTC [Commodity Futures Trading Commission], and fully complies with applicable laws,” a spokesperson said.
Investor Takeaway
The New York probe expands the regulatory battle beyond whether prediction markets are gambling. Advertising practices, influencer promotions and consumer protection are becoming separate sources of legal risk for platforms trying to grow quickly.
How Does The Kalshi Lawsuit Fit Into The Dispute?
The council investigation follows another escalation between New York and the prediction market industry. New York Attorney General Letitia James sued Kalshi last month, alleging that the platform was operating an illegal gambling business in the state.
The attorney general sought a temporary restraining order that would stop Kalshi from operating in New York, along with restitution for customers, disgorgement of profits and civil penalties that could total at least $36 billion.
The CFTC intervened on Tuesday using emergency authority to order Kalshi to continue operating despite the state lawsuit. The federal regulator has argued that it has exclusive jurisdiction over prediction markets, including sports-related event contracts.
That conflict creates a difficult operating environment for prediction market companies. A platform may consider its contracts compliant under federal commodities law while still facing lawsuits from states that classify the same activity as unauthorized gambling.
The dispute could eventually determine whether prediction market regulation is primarily handled through one federal framework or a combination of federal derivatives rules and state gambling laws.
Could New York Introduce New Marketing Rules?
NYC Council Member Harvey Epstein raised the possibility of legislation aimed specifically at consumer protection as the council reviews how prediction markets promote their products.
“With the industry aggressively marketing to New Yorkers, we have a responsibility to investigate their claims and the advertising tactics these companies are using to ensure they are following the law,” Epstein said.
That could create a second regulatory front even if prediction market operators prevail in disputes over federal jurisdiction. Companies may still face restrictions covering advertising disclosures, influencer campaigns, representations of potential winnings and marketing directed at younger consumers.
Kalshi and Gemini Titan had not publicly responded to the council’s inquiry at the time of the announcement. The responses from Coinbase and Polymarket indicate that the larger platforms are preparing to defend their existing practices while engaging with officials.
For prediction market operators, the immediate issue is therefore wider than whether individual contracts qualify as gambling. Their growth strategies, promotional partnerships and consumer disclosures are now attracting scrutiny alongside the underlying products, increasing compliance costs as the industry fights to preserve access to one of the largest U.S. markets.