A federal judge in Michigan has dismissed preliminary injunction requests from Polymarket and Robinhood, determining that the companies are unlikely to prevail in their challenge against Michigan’s regulation of sports-event contracts under state gambling laws.
In two nearly identical rulings, U.S. District Judge Paul Maloney rejected the assertion that these contracts qualify as swaps under the Dodd-Frank Act. He also raised doubts about whether Congress intended for federal commodities regulation to override state gambling authority.
Judge Maloney stated, “Plaintiff has not met its burden to show a likelihood of success on the merits, and the unclear legal landscape undermines its arguments on other factors.” Consequently, he denied the motion for a preliminary injunction.
This decision comes just a week before Judge Maloney is set to hear arguments regarding Michigan’s motion to remand a separate lawsuit against Kalshito back to state court after the case was moved to federal jurisdiction.
Both Polymarket and Robinhood contended that the sports-event contracts in question should be classified as swaps under the Commodity Exchange Act (CEA), thereby falling under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC).
However, the court found the statutory definition of 'swap' to be ambiguous. The judge noted that the legislative context and the presumption against federal intrusion into traditional state authority led to the conclusion that the products in question do not fall within this definition.
Judge Maloney emphasized that the Dodd-Frank Act was enacted to regulate over-the-counter derivatives markets in the wake of the 2008 financial crisis, rather than to address sports-event trading. He pointed out, “The primary issue Congress sought to resolve was unrelated to sports contracts. The markets of concern were dominated by large financial institutions, not individuals betting small amounts on sports outcomes.”
Furthermore, he remarked that Congress was primarily focused on systemic financial risks associated with complex derivatives markets, not on contracts linked to sporting events. The opinions indicate that neither the text nor the structure of Dodd-Frank implies that Congress aimed to convert sports betting into federally regulated derivatives trading.
Maloney concluded that educated individuals would not interpret the term 'swap' to encompass 'sporting event contracts' in a way that separates them from sports betting, and noted that the CFTC did not previously use the term 'swap' in that context before the Dodd-Frank Act was enacted.