Michigan Federal Judge Says Polymarket’s Preemption Argument Is Unlikely to Succeed
A federal judge in the Western District of Michigan ruled Wednesday that Polymarket’s U.S. entity is unlikely to succeed on the merits of its argument that federal law preempts Michigan’s gambling laws, denying the company’s motion for a preliminary injunction.
The ruling comes in a case brought by QCX LLC, doing business as Polymarket US, against Michigan Attorney General Dana Nessel and other state officials, after Michigan filed an enforcement action against the rival platform KalshiEX, alleging it operated an unlicensed sports betting business. Fearing similar action against it, Polymarket sued preemptively in federal court, a move that has played out well for prediction market legal teams in other states.
Judge Paul L. Maloney’s opinion is unusually direct: Plaintiff’s vision of the scope of derivatives is so vast that it would encompass swaths of activity never understood to be associated with the financial industry, and instead traditionally associated with core state responsibilities. That language places Michigan alongside Ohio as a state in which a federal court has rejected the prediction markets’ central legal theory, deepening a split that already runs through the Sixth Circuit.
Michigan Judge Rules Sports Events Do Not Qualify as Swaps Under the CEA
The opinion’s most significant move is that it does not stop at the preemption question. Maloney explains that the case turns on where state interest in regulating gambling ends and federal interest in regulating financial derivatives begins, and works through Polymarket’s argument in two stages: first, whether sports event contracts qualify as “swaps” under the Commodity Exchange Act, and second, even if they do, whether that classification preempts state gambling law. In a fairly significant blow, Polymarket lost on both.
On the swap question, the court found the statutory definition turns on whether an event is “associated with a potential financial, economic, or commercial consequence,” and concluded that phrase is ambiguous on its own. Polymarket argued that sporting outcomes carry economic ramifications through team valuations, merchandise sales, and local economic activity. The court rejected that reading as effectively limitless, noting that almost anything can have downstream economic consequences if the chain of association is allowed to extend far enough.
Instead, the court adopted a narrower standard requiring an inherent connection between the event and a financial consequence, the kind of relationship found in traditional swaps tied to interest rates, exchange rates, or commodity prices, rather than a remote, attenuated chain running from a game’s outcome to some hypothetical downstream economic effect. According to Judge Maloney, sports betting on a basketball score does not clear that bar.
Judge Maloney Issued a Three-Part Rejection of Polymarket’s Preemption Theories
What makes the ruling notable beyond the swap question is that Maloney went on to hold that even if Polymarket’s products were swaps, Michigan’s gambling laws would still not be preempted, addressing each of Polymarket’s three preemption theories in turn.
On express preemption, the court found that the “exclusive jurisdiction” language Polymarket relied on does not match the language Congress uses elsewhere in the same statute when it intends to preempt state law outright, and concluded that the clause instead functions to divide regulatory responsibility among federal agencies rather than to strip states of authority. When it comes to the on-field preemption, the court pointed to savings clauses in the statute and a provision explicitly granting state regulators a role in enforcing the Commodity Exchange Act itself, concluding Congress left room for state law rather than occupying the field entirely. On conflict preemption, the court rejected Polymarket’s claim that compliance with Michigan’s age and geographic verification requirements would violate federal impartial access rules, finding no genuine conflict between the two regimes.
That three-part rejection is harder for prediction market platforms to work around than a loss on the swap definition alone. A platform can argue at the circuit level that a different court should read “associated with” more broadly. It is a heavier lift to argue that even a favorable swap ruling should also overcome an independent, fully reasoned rejection of every preemption theory available.
The Sixth Circuit Looks to be the Next Battle Ground in the Event Contracts-Swaps Debate
This ruling lands in a circuit that already has a documented split, and a Supreme Court watcher might fairly read it as raising the odds that the Sixth Circuit becomes the venue where this issue gets resolved nationally.
In March, a federal court in Ohio reached the same conclusion in KalshiEX v. Schuler, finding sports-related event contracts are not swaps, a ruling already on appeal to the Sixth Circuit alongside a separate, conflicting result out of Tennessee, where a federal court found in February that Kalshi’s contracts likely do qualify as swaps and likely are preempted. The Sixth Circuit’s motion panel has already weighed in once, in the context of a stay request during the Ohio appeal, and found the state’s arguments persuasive enough to decline to block Ohio’s enforcement while the appeal proceeds. Maloney’s opinion leans heavily on that panel’s reasoning, citing it repeatedly as persuasive authority even though it is not yet a binding precedent.
The practical effect is that the Sixth Circuit will likely decide both the Ohio and the broader swap-definition question in a single appellate proceeding, with multiple district courts within the circuit, now including Michigan, having reached the same conclusion using overlapping reasoning. Courts outside the Sixth Circuit remain split in the other direction, with the Third Circuit and a Nevada district court finding that sports event contracts are likely swaps. A circuit-level ruling against the platforms, if it comes, would create a clean circuit split with the Third Circuit’s pro-Kalshi holding from April, which is close to the kind of conflict the Supreme Court typically waits for before granting certiorari.
States Are Lining Up to Join the Legal Battle Against Prediction Markets
The picture inside the Sixth Circuit, beyond Ohio, Tennessee, and Michigan, adds useful texture. Indiana has not generated its own district court ruling, but joined a coalition of 39 states and the District of Columbia in a June amicus brief warning that a win for Kalshi would strip states of their traditional authority to regulate gambling, a brief that also drew support from former CFTC chair Gary Gensler and more than two dozen Native American tribes.
Kentucky has taken a different approach entirely. Rather than attempting to block prediction markets outright, the state imposed a 14.25 percent excise tax on prediction market transaction fees this spring, the first state-specific tax of its kind. Kalshi, Polymarket, and Crypto.com sued Kentucky on June 12 through the Coalition for Fair Markets, calling the tax discriminatory and unconstitutional, and arguing that it disincentivizes operating in the state.
That case is still at the earliest procedural stage, well behind the developed records in Ohio, Tennessee, and now Michigan, and raises a different legal question entirely: whether a state can tax what it may not be able to ban outright, a question we have examined in the context of Illinois’s parallel transaction tax fight.
One More Step Towards a Possible Supreme Court Showdown
Maloney’s opinion acknowledges that other courts have reached the opposite conclusion and that Polymarket’s chances, while not substantial in his judgment, are not zero. The case is far from over. Polymarket can appeal to the Sixth Circuit, where it would likely be consolidated with or decided alongside the pending Ohio and Tennessee appeals already scheduled for oral argument on July 30 in Cincinnati.
What Wednesday’s ruling adds is a third Sixth Circuit district court reaching the same conclusion as Ohio, using reasoning that explicitly leans on the Sixth Circuit’s own preliminary signals from the Ohio stay decision. Sixth Circuit precedent on this exact question remains unsettled, but the district-level consensus-building within the circuit, against a Third Circuit precedent running the other way, is precisely the kind of split that tends to attract Supreme Court attention. For months, it has looked as though the prediction market battle could ultimately end up before the Supreme Court, and this is just one more step in that direction. July 30 in Cincinnati is shaping up to be one of the more consequential dates on the prediction markets litigation calendar.
Players trust our reporting due to our commitment to unbiased and professional evaluations of the iGaming sector. We track hundreds of platforms and industry updates daily to ensure our news feed and leaderboards reflect the most recent market shifts. With nearly two decades of experience within iGaming, our team provides a wealth of expert knowledge. This long-standing expertise enables us to deliver thorough, reliable news and guidance to our readers.
Latest News
