Michigan Court Ruling and State-Level Pushback Create New Headwinds for Prediction Market Operators
A federal judge in Michigan denied preliminary injunction requests from Polymarket and Robinhood. The court concluded the companies had not demonstrated a likelihood of success on the merits. This decision adds to a growing list of regulatory and legal challenges that prediction market platforms must navigate while several new entrants push for growth.
The ruling from U.S. District Judge Paul Maloney determined that sports-event contracts are likely not swaps under the Commodity Exchange Act. He questioned whether Congress intended federal commodities regulation to preempt state gambling laws. From the operator side this creates immediate uncertainty around how platforms price and clear event contracts across state lines.
Kentucky Attorney General Russell Coleman filed lawsuits against Kalshi and Polymarket along with sweepstakes operator VGW. The complaints allege the companies are conducting illegal gambling operations within the state. Days earlier the newly formed Coalition for Fair Markets representing Kalshi Polymarket US and Crypto.com’s derivatives exchange filed its own lawsuit challenging Kentucky’s recently enacted prediction market tax and related restrictions.
Kentucky lawmakers approved a 14.25% tax on prediction market revenue. The state also prohibited licensed sportsbooks from partnering with prediction market platforms beginning July 15. These moves illustrate how states are asserting control even as federal agencies like the CFTC argue for exclusive jurisdiction.
Court Actions Signal Fragmented Regulatory Landscape
The U.S. Court of Appeals for the Sixth Circuit denied a request from the CFTC to participate in oral arguments in Kalshi’s Ohio appeal. In April the court denied Kalshi’s request for an injunction pending appeal in its challenge to Ohio’s sports betting enforcement. The court also consolidated the Ohio and Tennessee appeals uniting two cases with conflicting lower court rulings on whether states can regulate sports-event contracts offered on federally regulated exchanges.
The CFTC amended its lawsuit against Illinois after Gov. JB Pritzker signed legislation creating a new tax structure for prediction markets. The amended complaint challenges Illinois’ new exchange wager provisions. The CFTC argues that the state is attempting to regulate markets that fall within the CFTC’s exclusive jurisdiction.
The new Illinois law would impose transaction fees ranging from 1.75% to 3.5% on sports event contracts. The CFTC filed a motion for preliminary injunction seeking to block Illinois from enforcing its gambling laws against event contracts while the litigation proceeds. The agency argued Illinois is engaged in a targeted campaign of regulatory hostility toward prediction markets.
New York regulators filed Judge Maloney’s opinion as supplemental authority in the state’s ongoing litigation against Kalshi. A coalition of tribal gaming organizations and more than 30 federally recognized tribes submitted an amicus brief in support of New York’s position. Groups including the Indian Gaming Association the National Congress of American Indians the Arizona Indian Gaming Association the Washington Indian Gaming Association and numerous tribal governments submitted the filing.
The tribes argue that prediction markets threaten the exclusivity of tribal gaming arrangements and could undermine long-standing federal and state gaming frameworks. After eighteen years across iGaming and sportsbook operations I have seen similar tensions play out when new product categories bump against established revenue streams.
CME Lawsuit Highlights Industry Splits on Derivatives Oversight
Chicago Mercantile Exchange filed suit against the CFTC in the U.S. District Court for the District of Columbia challenging the agency’s approval of Kalshi’s Bitcoin perpetual futures contract. CME argues perpetual contracts are swaps rather than futures. The company contends the CFTC unlawfully reversed its prior position without formal rulemaking.
The lawsuit seeks to vacate the agency’s approval order and obtain a declaration that cryptocurrency perpetual contracts should be regulated as swaps. This represents a rare split between major derivatives market participants and the CFTC which has recently sued multiple states for attempting to regulate event contracts asserting federal authority over them.
A new proposed class action filed in California alleges Robinhood is operating an unlicensed sports gambling platform through its prediction market offerings. The complaint argues Robinhood’s event contracts are effectively sports wagers rather than financial products. It seeks to recover losses allegedly incurred by customers.
The lawsuit also alleges Robinhood created a misleading impression that the products had state regulatory approval and targeted customers who may not otherwise participate in traditional gambling activities. These claims introduce litigation risk that operators must now factor into compliance planning.
New Launches and Partnerships Show Continued Momentum
ProphetX announced a nationwide launch touting itself as America’s first federally regulated sports-native prediction market. The former state-licensed sports betting operator which later became a peer-to-peer sweepstakes exchange received CFTC approval as a designated contract market and a derivatives clearing organization last week.
Novig received CFTC approval to operate as a designated contract market. The platform launched in 2021 as a betting exchange in New Jersey and Colorado. It briefly offered sports betting in Colorado before exiting the state and later exited New Jersey as well.
In 2024 Novig pivoted to the sweepstakes model. Now the pivot to prediction markets is complete and the company is likely to launch a platform soon. 365Prediction founded by gaming executive Laila Mintas filed an application with the CFTC seeking approval to operate a designated contract market.
The company disclosed plans for a fully collateralized exchange structure. It indicated it has licensed Eventus surveillance technology to monitor trading activity and detect potential market abuses. Kalshi announced a partnership with Wealthsimple that will bring prediction market products to Canadian users.
Due to Canadian regulatory restrictions sports event and election contracts are excluded. The approval covers contracts with a 30-day settlement period or longer within the categories of economic indicators financial markets and climate.
Polymarket and Splash Sports announced a strategic partnership centered on the world’s largest professional football survivor contest. The contest includes a guaranteed prize pool of $21 million. Participants make weekly picks with the last person standing winning the top prize.
Sports streaming giant DAZN and ADI PredictStreet the official prediction market of the FIFA World Cup 2026 announced a free-to-play prediction market product tied to the tournament. The offering allows DAZN users to make tournament predictions and compete through a gamified forecasting experience designed around the World Cup.
Crypto online casino and sportsbook BC.Game announced the integration of Polymarket markets into its platform through a new Prediction Center. The move expands Polymarket’s distribution footprint and provides BC.Game users with direct access to event-contract markets covering sports politics and current events.
Risks and Limitations in the Current Environment
The wave of state actions and tribal opposition highlights a core limitation for prediction market operators. Even with CFTC approvals at the federal level platforms face enforcement risk in individual states that view event contracts as gambling. The Michigan ruling and New York’s use of it as supplemental authority strengthen the hand of regulators and tribes who prioritize protecting existing gaming frameworks.
Litigation costs are rising. Multiple simultaneous lawsuits from state attorneys general plus private class actions and challenges from established derivatives players like CME create a complex risk matrix. Operators must allocate significant resources to legal defense while simultaneously investing in compliance technology such as the Eventus surveillance tools mentioned in 365Prediction’s filing.
The counterargument from the industry coalition and CFTC actions is that federal preemption should protect these markets. Yet the conflicting court rulings and state-level taxes show that resolution remains distant. In my experience across European regulated markets operators price in this type of regulatory overhead faster than most expect but sustained uncertainty still slows commercial partnerships.
The Bottom Line is that prediction markets are advancing on multiple fronts with new CFTC approvals launches and partnerships demonstrating commercial momentum. At the same time the Michigan decision Kentucky lawsuits tribal amicus briefs and CME challenge underscore persistent friction between federal oversight and state gambling authority. Operators who build robust compliance and surveillance capabilities while tracking the consolidated Sixth Circuit appeals will be best positioned as these cases move toward clearer precedent ahead of larger events like the World Cup 2026.
