Key Takeaways
- Both Polymarket and Robinhood were denied preliminary injunctions by a Michigan federal court
- District Judge Paul Maloney determined sports prediction contracts likely don’t qualify as “swaps” under Dodd-Frank
- The decision found no explicit congressional language preempting state gambling authority
- This ruling contradicts a Tennessee court decision from February that sided with Kalshi
- The conflict between circuits continues to deepen, with appellate arguments set for July 30
In a significant setback for prediction market platforms, a Michigan federal judge has rejected attempts by both Polymarket and Robinhood to prevent state authorities from applying gambling regulations to their sports-related prediction products.
On June 17, Judge Paul Maloney from the U.S. District Court for the Western District of Michigan delivered two substantially similar opinions. His conclusion: neither platform demonstrated sufficient legal grounds to warrant preliminary injunctive relief.
The central claim from both companies centered on classifying their sports prediction contracts as “swaps” under the Commodity Exchange Act. Such a classification would transfer regulatory jurisdiction to the Commodity Futures Trading Commission at the federal level, effectively removing state gambling regulators from the equation.
Judge Maloney dismissed this interpretation.
Court Finds Sports Betting Falls Outside Swap Definition
According to Judge Maloney’s analysis, the term “swap” as used in the Dodd-Frank Act lacks the precision needed to encompass sports prediction contracts. His opinion emphasized that congressional intent did not extend to this category of agreements.
The Dodd-Frank legislation emerged as a regulatory response to the 2008 financial collapse, specifically targeting opaque over-the-counter derivative instruments traded between major financial entities. Maloney observed that this legislative framework bears no connection to individual consumers wagering on sporting events.
“The primary issue it set out to solve had nothing to do with sports-related contracts,” Maloney wrote.
The judge further cautioned that adopting the platforms’ expansive interpretation of “swap” would dramatically extend federal regulatory reach into domains never intended by Congress. His opinion suggested such logic could theoretically encompass home mortgages, service agreements, and even marital contracts.
Polymarket initiated litigation in March against Michigan Attorney General Dana Nessel along with other state enforcement officials. The company’s argument stressed it faced “imminent and concrete danger” from state action and maintained its offerings already operated under legitimate CFTC oversight.
The judicial response remained unconvinced.
State Authority Over Gambling Remains Intact
Judge Maloney similarly dismissed arguments that federal commodities law implicitly displaces state gambling jurisdiction. His reasoning drew upon Bond v. United States, a Supreme Court decision establishing that courts must not presume congressional interference with traditional state powers absent explicit statutory language.
“There is no clear statement that Congress intended to supersede the states’ traditional role in regulating gambling,” Maloney wrote.
This marks Polymarket’s second recent defeat in American courts. Just weeks ago, the Nevada Gaming Control Board secured a judicial order terminating Polymarket’s activities within Nevada’s borders.
Polymarket maintains active litigation in both Massachusetts and Minnesota. Notably, Minnesota recently enacted the nation’s first statutory prohibition specifically targeting prediction market platforms.
Deepening Circuit Conflict
These Michigan decisions intensify an emerging conflict among federal district courts. This past February, a Tennessee district judge sided with Kalshi, determining its contracts probably do constitute federally regulated swaps. Conversely, an Ohio judge arrived at the contrary position during roughly the same timeframe.
This judicial disagreement may find resolution when the Sixth Circuit Court of Appeals conducts oral arguments regarding the Tennessee matter on July 30.
With more than a dozen states now engaged in regulatory or legal action, and the CFTC having issued fresh guidance for prediction market platforms, this legal battle appears far from resolution.
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