One legal theory—that sports-event contracts are financial derivatives subject to federal regulation—is the foundation for the multibillion-dollar prediction market industry's growth into the sports sector. On Thursday, June 18, a federal judge in Michigan found it hard to accept this notion.
Polymarket and Robinhood requested preliminary injunctions to prevent Michigan from implementing its gambling laws against them while the lawsuit was pending, but Judge Paul L. Maloney refused their request.
Kalshi was sued in March by the Michigan Gaming Control Board and Attorney General Dana Nessel, who claimed that Kalshi's sports contracts amounted to unlawful sports betting under Michigan law.
According to the state, businesses cannot avoid gambling regulations by simply rebranding wagers as event contracts. Polymarket and Robinhood, Kalshi's rivals, saw the writing on the wall and filed a preemptive lawsuit.
Court of Skepticism
Maloney stated in a scathing judgment that the Commodity Exchange Act (CEA) contained "no clear statement that Congress intended to supersede the states’ traditional role in regulating gambling."
Prediction platforms contend that CEA places sports-event contracts outside the jurisdiction of state gaming authorities by granting the Commodity Futures Trading Commission (CFTC) exclusive authority over them.
"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, where did Congress explicitly specify that states no longer have the long-standing jurisdiction to regulate gambling, assuming that these sports contracts are covered by the CEA?
In response to the 2008 financial crisis, the Dodd-Frank Act, a 2010 financial reform law, strengthened federal control of derivatives markets by defining swaps and amending the CEA.
Lawmakers attempted to control the intricate financial derivatives that were partially to blame for the crisis with Dodd-Frank. Maloney said it was hard to believe that Congress was trying to protect regular people who were betting 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 Divided
The Michigan decision is the most recent development in a series of legal disputes over sports contract regulation that are taking place all around the United States.
The courts are divided. A Tennessee federal court in April 2025 was comparatively open to the claim that contracts for sporting events are under federal control. However, a federal judge in Ohio determined in September 2025 that these contracts were more like gambling.
Maloney's decision is not a definitive conclusion on the validity of contracts for sporting events; rather, it is a denial of an injunction.
