The battle between prediction markets and New Mexico escalated Tuesday as Polymarket sued the state in an effort to block enforcement of its gambling laws.
Key Takeaways
- Polymarket is seeking multiple injunctions from a U.S. district court.
- Polymarket argues its business would suffer irreparable harm if New Mexico takes enforcement action.
- The prediction market operator said it tried to avoid litigation with the state.
Polymarket filed the lawsuit Tuesday against New Mexico Attorney General Raul Torrez and six members of the state’s gaming control board over the "irreparable harm" it says would result if officials take enforcement action.
Polymarket sues New Mexico. pic.twitter.com/Xb1J5pBPq9
— Mick Bransfield (@MickBransfield) July 1, 2026
The prediction market operator asked the U.S. District Court of New Mexico for a declaratory judgment that state law can’t preempt federal law, as well as both preliminary and permanent injunctions to keep New Mexico from proceeding against Polymarket for offering sports and other event contracts in the jurisdiction.
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Arguing business damages
Polymarket, like competitor Kalshi, claims only the Commodity Futures Trading Commission (CFTC) can regulate and punish prediction market platforms, which it argues are operating lawfully in New Mexico under federal law.
Polymarket argues in the lawsuit that “even a meritless” enforcement action from New Mexico would damage the market, affect liquidity, hurt banking and commercial relationships, and undermine trust among its users in New Mexico.
“The chilling effect on lawful activity and the deprivation of New Mexico residents’ access to a federally regulated exchange is precisely the harm Congress sought to prevent when it vested the CFTC with sole regulatory authority over derivatives traded on designated contract markets,” Polymarket wrote in the court filing.
Multiple lawsuits
Torrez sued Kalshi on June 4, arguing the prediction market operator’s sports contracts violated New Mexico’s gambling laws. The CFTC responded by filing a lawsuit against the state June 12, saying only the federal agency has regulatory jurisdiction over prediction markets.
Polymarket said in the court document that it met with the New Mexico Department of Justice after the state sued Kalshi in early June, looking to avoid “unnecessary litigation.” Polymarket asked the NMDOJ on June 8 to hold off on any penalty measures until Kalshi’s litigation was complete.
Polymarket renewed that request June 22 after the CFTC’s lawsuit was filed. The NMDOJ rejected those requests June 29, and Torrez signed an amicus brief supporting the enforcement of state gaming laws, which Polymarket viewed as threats to its business.
“These actions demonstrate Defendants’ intent to use state law to shut down federally authorized markets despite clear federal preemption,” the prediction market operator said in the court filing. “Polymarket US therefore faces a real and imminent risk of enforcement, exposing it to civil penalties, potential criminal liability, forced cessation of operations within New Mexico, and severe collateral consequences to its nationwide operations.”
Prediction problems
Prediction market operators have been at odds with more than a dozen U.S. states since last year. Gaming commissions in several jurisdictions have sent cease-and-desist letters to trading exchanges, warning of potential fines and criminal offenses that stem from offering sports contracts in states with legal sports betting.
Prediction market operators are seeking to operate in all 50 states claiming federal regulation and that their derivatives act as “swaps,” not bets. New Mexico claimed Kalshi violated state laws by offering unlicensed sports betting in a jurisdiction where legal gaming must run through tribal nations or state regulators. The state only allows sports betting at brick-and-mortar casinos.
Polymarket is involved in legal battles in other states as well, including Kentucky and Rhode Island, which have filed suits. Polymarket was founded in 2020 but left the U.S. over regulatory concerns in 2022. The operator returned in December 2025 and has since been offering contracts on sports leagues, including the NFL, NBA, MLB, and others.
In related prediction market news, Polymarket has encountered multiple instances of insider trading, notably by a U.S. service member who made over $400,000 from markets related to the capture of Venezuelan President Nicolas Maduro last year.
