Michigan Judge Casts Doubt on Legal Theory Underpinning Prediction Markets

• Michigan judge rejects Polymarket and Robinhood bid to block state gambling enforcement
• Court questions whether sports-event contracts qualify as federally regulated swaps
• Ruling deepens legal divide over prediction markets and sports betting

The entire multi-billion-dollar prediction-market industry’s expansion into sports hinges on a single legal theory: that sports-event contracts are federally regulated financial derivatives. It’s a theory a federal judge in Michigan found difficult to swallow on Thursday (June 18).

Judge Paul L. Maloney denied Polymarket and Robinhood’s request for preliminary injunctions to stop Michigan from enforcing its gambling laws against them while litigation was ongoing.

Michigan Attorney General Dana Nessel and the Michigan Gaming Control Board sued Kalshi in March, arguing its sports contracts were simply unlicensed sports betting under Michigan law.

The state’s position is that companies cannot sidestep gambling laws merely by rebranding wagers as event contracts. Kalshi competitors Polymarket and Robinhood saw the writing on the wall and sued pre-emptively.

Skeptical Court

In a sharply worded opinion, Maloney said there was “no clear statement that Congress intended to supersede the states’ traditional role in regulating gambling” in the Commodity Exchange Act (CEA).

Prediction platforms argue CEA gives the Commodity Futures Trading Commission (CFTC) exclusive authority over sports-event contracts, placing them beyond the reach of state gambling regulators.

When a federal statute touches on ‘areas of traditional state responsibility,’ courts must look for a clear statement from Congress that it intended to effect a significant change in the sensitive relation between the federal and state governments,” Maloney explained.

In other words, if we assume these sports contracts fall within the CEA, where did Congress clearly say that states lose their longstanding authority to regulate gambling?

The Dodd-Frank Act was a 2010 financial-reform law that amended the CEA in the wake of the 2008 financial crisis and expanded federal oversight of derivatives markets, including by defining swaps.

Dodd-Frank was an effort by lawmakers to regulate the complex financial derivatives that were partly blamed for the crisis. Maloney said it strained credulity that Congress intended this effort to cover ordinary people staking money on football games.

“Plaintiff’s vision of the scope of derivatives is so vast that it would encompass vast swaths of activity never understood to be associated with the financial industry and instead traditionally associated with core state, as opposed to federal, responsibilities,” he wrote.

Courts Split

The Michigan ruling is the latest chapter in a wave of legal battles across the US over who should regulate sports contracts.

Courts are split. In April 2025, a federal judge in Tennessee was relatively receptive to the argument that sports-event contracts fall under federal jurisdiction. But in September 2025, an Ohio federal judge concluded such contracts were more akin to gambling.

Maloney’s ruling is a denial of an injunction and not a final judgment on the legality of sports events contracts.