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Polymarket suffered an early legal setback after a federal judge denied the company’s request for a preliminary injunction that would have blocked Michigan Attorney General Dana Nessel from enforcing state gambling laws against prediction market operators.
In a 34-page opinion issued June 17, U.S. District Judge Paul Maloney ruled that Polymarket failed to show it was likely to succeed on the merits of its claims. The decision marks another significant development in the growing legal fight over whether sports-related prediction markets are federally regulated financial products or sports betting subject to state gaming laws.
Although Michigan’s underlying enforcement action targets Kalshi, Polymarket intervened, arguing the state’s position threatens federally regulated prediction market exchanges more broadly. Polymarket filed a notice of appeal to the 6th U.S. Circuit Court of Appeals the same day the ruling was issued, according to Bloomberg Tax.
Legal fight centers on sports prediction contracts
Michigan alleges Kalshi illegally offered sports wagering products to residents while attempting to classify them as federally regulated event contracts. State officials argue the markets function similarly to sportsbooks and therefore fall under Michigan gaming law.
Polymarket countered that federal oversight by the Commodity Futures Trading Commission preempts state regulation under the Commodity Exchange Act.
Judge Maloney rejected the request for preliminary relief, emphasizing that the court was not deciding the ultimate legality of prediction markets but whether Polymarket met the high standard required to temporarily block state enforcement.
Judge rejects federal derivatives classification
A central issue involved whether sports-event contracts qualify as federally regulated “swaps” under commodities law.
Polymarket argued its contracts fall within the CFTC’s jurisdiction. Maloney disagreed, writing that Congress intended derivatives laws to regulate sophisticated financial products tied to systemic market risk, not products resembling sports wagers.
“It is clear that Congress intended the definition of swap to capture a set of products in the financial industry which caused the 2008 financial crisis,” Maloney wrote, “and not to place broad swaths of everyday economic activity under the authority of the Commodity Futures Trading Commission.”
The ruling is among the clearest judicial statements so far suggesting sports prediction contracts may fall outside the traditional scope of federal derivatives law, according to MLive.
States retain broad gambling authority
Maloney repeatedly emphasized that states have historically maintained broad authority to regulate gambling within their borders.
The opinion described gambling regulation as being “at the heart of states’ police powers,” adding that federal courts should hesitate before interfering with those responsibilities absent clear congressional intent.
The judge also weighed the competing harms facing both sides, concluding the public interest in allowing Michigan to enforce its gambling laws outweighed Polymarket’s business concerns.
Appeals could shape the industry’s future
The Michigan case is one of several legal battles shaping the future of sports prediction markets nationwide. Multiple states have challenged sports-event contracts offered by companies including Kalshi and Polymarket, arguing they function as unlicensed sports betting.
Prediction market operators maintain the contracts are federally regulated through the CFTC and cannot be prohibited by individual states.
The legal landscape remains unsettled. Federal courts in Michigan and Ohio have recently sided with state regulators, while separate litigation in Tennessee has been viewed as more favorable to prediction market companies.
Maloney’s ruling does not resolve the broader dispute, but it gives state regulators another early victory as appellate courts prepare to weigh in. Legal experts expect the issue could eventually reach the US Supreme Court if federal circuits issue conflicting rulings.
