A federal court in Michigan has ruled that sports-related prediction market contracts offered by Polymarket are subject to state oversight, delivering another setback for the company in its dispute with regulators over the legal status of event-based trading products.

U.S. District Judge Paul L. Maloney of the Western District of Michigan denied Polymarket’s request for a preliminary injunction that sought to stop Michigan authorities from restricting the company’s sports event contracts. The decision allows state regulators to continue enforcing Michigan gambling laws against the platform.

The ruling follows a lawsuit Polymarket filed in March after state officials challenged its operations. Michigan regulators have argued that the company’s sports event contracts amount to sports betting under state law, while Polymarket has maintained that the products are financial instruments regulated at the federal level by the Commodity Futures Trading Commission (CFTC).

Court Rejects Federal Regulation Argument

At the center of the dispute was Polymarket’s claim that its contracts should be treated as derivatives, specifically swaps, and therefore fall under federal jurisdiction rather than state gambling regulations.

Judge Maloney disagreed, concluding that the company had not shown a strong likelihood of success on the merits of its case. In his opinion, he questioned the broad interpretation of derivatives advanced by Polymarket.

“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 also addressed whether federal legislation enacted after the 2008 financial crisis, including the Dodd-Frank Act, was intended to transfer authority over sports-related wagering from states to federal regulators. He expressed skepticism that Congress sought such a significant shift in power.

“Congress is not so cavalier with the fundamental federalist structure of the government,” he continued according to decrypt. “The Court is convinced that its laws in the wake of the 2008 financial crisis were not aimed at fundamentally redefining the balance between the federal and state governments in ways unrelated to the problems it set out to solve.”

In a separate portion of the ruling, Maloney directly rejected Polymarket’s effort to classify sports event contracts as swaps.

“The term ‘swap’ would not have been understood by educated users of the language to include ‘sporting event contracts’ to the extent that that category could be separated from sports betting, and the CFTC did not use the term ‘swap’ that way before the passage of Dodd-Frank. Nor did it do so afterward.”

Impact on Michigan Operations

The court also dismissed Polymarket’s contention that enforcement efforts by Michigan officials would cause sufficient harm to justify emergency relief. According to the ruling, the company failed to demonstrate that the balance of factors favored its request.

As a result of the decision, Michigan residents cannot access Polymarket’s services. The ruling also affects other prediction market operators facing similar regulatory scrutiny, including Kalshi. For now, licensed sportsbooks remain the only legal option for sports wagering in the state.

Michigan has taken an aggressive approach toward unlicensed and unauthorized wagering activities, and the latest ruling strengthens regulators’ ability to continue those enforcement efforts.

Broader National Dispute Continues

The Michigan case is part of a growing legal conflict playing out across the United States as prediction market operators seek recognition as federally regulated exchanges while state officials argue that many sports event contracts function as gambling products.

Federal courts have issued differing opinions on the issue over the past year. Within the Sixth Circuit, which includes Michigan, Ohio, Kentucky, and Tennessee, judges have reached different conclusions. An Ohio federal judge sided with state regulators in March, while a Tennessee federal judge ruled in favor of prediction markets and the CFTC in February.

The Sixth Circuit Court of Appeals is expected to begin considering the matter in the coming weeks. With conflicting decisions emerging from lower courts, the question of whether sports event contracts fall under federal derivatives law or state gambling regulations remains unresolved.

Legal observers expect the dispute to continue through the appellate courts and potentially reach the U.S. Supreme Court, which may ultimately determine how prediction markets and sports event contracts are regulated nationwide.