Polymarket has filed a federal lawsuit against the state of New Mexico, seeking to block authorities from applying gambling statutes to its prediction markets platform.
The case highlights a growing clash between state regulators and federally authorised prediction markets. Polymarket warns of “irreparable harm” if enforcement proceeds, arguing that the Commodity Exchange Act grants the U.S. Commodity Futures Trading Commission (CFTC) sole authority over event contracts.
Additionally, this lawsuit relates to New Mexico’s earlier action against rival platform Kalshi, bringing fresh questions about the range of federal oversight versus state gambling laws. At the moment, more than a dozen states are challenging prediction market platforms, indicating a growing national conflict.
Aside from New Mexico, Kentucky, Arizona, and New York have taken legal action against platforms like Polymarket and Kalshi. These platforms now process $24 billion in monthly volume, surpassing sports betting, according to Forbes.
Additionally, experts predict that an eventual Supreme Court showdown will resolve the federal preemption versus state sovereignty debate.
Defendants named in the complaint
The lawsuit names Attorney General Raul Torrez and six members of the New Mexico State Gaming Control Board. Polymarket maintains that prediction markets fall under the exclusive jurisdiction of the CFTC, not individual states.
Torrez has previously joined amicus briefs supporting other states’ efforts to enforce gaming laws against federally regulated markets, positioning New Mexico as a key player in the broader legal fight.
Amicus briefs have also become a fundamental part of prediction market lawsuits. States and organisations seek to shape how courts clarify federal versus state authority. Moreover, while not technically an amicus, the CFTC has meddled directly.
It has also filed briefs that highlight federal preemption under the Commodity Exchange Act. Organisations like the Coalition for Prediction Markets point out that these platforms offer economic and forecasting value, warning that treating them as gambling undermines financial innovation and public information.
Platform’s concerns over enforcement
Polymarket contends that state-level enforcement would disrupt liquidity, damage banking relationships, and erode user trust in federally regulated markets. The company is asking the court to declare that New Mexico’s gambling statutes do not apply to its operations.
But liquidity remains a crucial factor in regulatory speculation. It highlights how prediction markets outperform polls and experts. Moreover, without liquidity, consequences include institutional players withdrawing and the slow growth of innovation. Ongoing lawsuits further discourage new entrants, compounding the sector’s fragility.
This legal battle follows New Mexico’s recent action against Kalshi, which the state accused of illegally offering sports betting contracts. Before filing suit, Polymarket submitted two petitions to delay enforcement in light of the Kalshi case. Both were denied, prompting the company to file a lawsuit in federal court, according to several media reports.
Claim of federal preemption
In its filing, Polymarket asserts that New Mexico’s actions aim to shut down federally authorised prediction markets, directly contradicting what it describes as a clear regulatory framework under the CFTC.
With state attorneys general increasingly filing briefs, this mirrors coordinated resistance to federal preemption. Users, for instance, now have access, but this varies by state. Some residents are still blocked from federally regulated markets. Meanwhile, at the policy level, the widening split may ultimately push the issue to the Supreme Court, where it can strike a balance between federal authority and state sovereignty.
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