A federal judge in Michigan has determined that the sports-related prediction market contracts provided by Polymarket do not fall under the jurisdiction of the Commodity Futures Trading Commission (CFTC). This decision bolsters the efforts of state regulators who are working to categorize these products under sports betting regulations.
The ruling arises from a legal disagreement between Polymarket and Michigan's regulatory authorities regarding the classification of the operator's sports event contracts. State officials contend that these contracts, offered to residents of Michigan, should be classified as sports betting under state laws.
Judge Paul L. Maloney of the U.S. District Court for the Western District of Michigan denied Polymarket's request for a preliminary injunction that aimed to stop state regulators from halting the contracts.
In his ruling issued on Wednesday, Maloney dismissed Polymarket's claim that the sports event contracts should be considered swaps subject to federal regulation. He stated, “Plaintiff’s vision of the scope of derivatives is so vast that it would encompass vast swaths of activity never understood to be associated with the financial industry and instead traditionally associated with core state, as opposed to federal, responsibilities.”
The judge further questioned whether Congress intended for legislation passed after the 2008 financial crisis, including the Dodd-Frank Act, to shift control over sports-related wagering from state regulators.
While the CFTC, along with Polymarket and other prediction market platforms, has consistently argued that the contracts in these markets are financial derivatives traded on an exchange, state regulatory bodies have increasingly challenged this stance, asserting that the sports event contracts closely resemble traditional sports betting products.
This ruling in Michigan follows a similar court decision in Nevada earlier this month, where a judge prohibited Polymarket from operating in the state on the grounds that its sports event contracts qualify as sports betting under state law.
During Donald Trump’s second term, the CFTC has asserted its authority to regulate prediction markets under existing legislation. Recently, the CFTC has even filed lawsuits against several states aiming to limit the expansion of prediction markets.
The final resolution of this issue is likely to be determined by the U.S. Supreme Court.