Michigan judge allows state regulators to pursue action against Polymarket
The ruling dismisses Polymarket’s argument that its event contracts qualify as financial derivatives subject to exclusive federal oversight.
US.- Paul L. Maloney, a federal judge, has refused to grant a preliminary injunction sought by Polymarket to stop Michigan regulators from applying state gambling laws to its operations. Polymarket had argued that its sports-related event contracts should be treated as financial derivatives regulated exclusively by the Commodity Futures Trading Commission (CFTC), but the court rejected the claim that federal law pre-empts state action.
Polymarket has maintained that users trade contracts based on event outcomes, placing its products under the CFTC’s jurisdiction. Michigan regulators argue that contracts linked to sporting events function as bets regardless of how they are structured.
Judge Maloney sided with the state’s reasoning, rejecting the argument that contracts tied to sports results qualify as swaps under federal commodities law. Without that classification, Polymarket’s case for exclusive CFTC oversight becomes significantly weaker. “The plaintiff’s vision of the scope of derivatives is so vast that it would encompass vast swathes of activity never understood to be associated with the financial industry,” he wrote.
The judge also expressed scepticism about extending federal authority into areas traditionally regulated by individual states.
Courts remain divided over prediction markets
The case comes amid growing tensions between state regulators and federal authorities over the legal status of prediction markets. In recent months, the CFTC has taken a more aggressive approach, arguing that existing laws give it the authority to oversee these products, and has challenged states that sought to ban prediction platforms.
Courts around the US, however, have reached different conclusions. Some have sided with state regulators, while others have shown greater willingness to recognise federal jurisdiction, creating an inconsistent legal landscape for operators
Attention is now turning to the Sixth Circuit Court of Appeals, which covers Michigan and several neighbouring states. Its ruling could shape future disputes over prediction markets, although many observers expect the issue to eventually reach the US Supreme Court.
