This week witnessed significant advancements in prediction market litigation across the United States, marked by new lawsuits, tribal involvement, and the first federal prediction market bill making progress in Congress.
The Commodity Futures Trading Commission (CFTC) has initiated legal action against Kentucky, while Kalshi has contested Illinois' new regulatory framework. Additionally, a federal judge has returned Michigan's case against Kalshi to state court.
In Kentucky, the CFTC's lawsuit claims that the state's recent enforcement actions against Kalshi and Polymarket, along with its new prediction market law, infringe upon the CFTC's authority over federally regulated derivatives exchanges. This lawsuit represents the CFTC's ninth challenge against a state, and notably, the first against a Republican-led state.
Meanwhile, Kalshi is also disputing Illinois' prediction market framework, which categorizes sports-event contracts as sports wagering, imposes taxes, and mandates state licenses for operators. Kalshi contends that this law conflicts with the Commodity Exchange Act (CEA) and the CFTC's exclusive jurisdiction.
In Michigan, a federal judge has sent Attorney General Dana Nessel's lawsuit against Kalshi back to state court, determining that federal jurisdiction was not established. Judge Paul Maloney dismissed Kalshi's claims that the case should be heard in federal court, stating that Michigan's claims did not raise federal issues and were not entirely preempted by the CEA.
Ohio's Attorney General, Andy Wilson, is using Michigan's recent federal rulings to bolster an appeal in the Sixth Circuit regarding Kalshi's challenge to Ohio's cease-and-desist order. Wilson pointed out that the Michigan court's decision addressed similar preemption theories, emphasizing that there was no definitive congressional intent for federal derivatives law to override state regulation of gambling.
On the tribal front, Kalshi has sought to dismiss a federal lawsuit initiated by several tribes in New Mexico, arguing that these tribes lack authority over non-member activities and that their claims are preempted by the CEA. Kalshi asserts that tribal gaming laws cannot apply to federally regulated derivatives exchanges operated by non-members.
Furthermore, tribal organizations are attempting to join ongoing litigation in Rhode Island. The Indian Gaming Association and several other tribal entities have requested permission to submit an amicus brief supporting Rhode Island's opposition to preliminary injunction requests from Kalshi, Polymarket, and the CFTC. This brief argues that accepting the exchanges' preemption claims could threaten tribal sovereignty under the Indian Gaming Regulatory Act and jeopardize vital funding for tribal governments and public services.
As Congress continues to focus on prediction markets, the landscape of legal challenges and regulatory developments remains dynamic.