In brief
- A Michigan federal judge ruled sports prediction markets are not CFTC-regulated swaps, siding with state regulators over Polymarket.
- The court denied Polymarket’s bid to block Michigan from restricting its sports event contracts.
- The case is headed to the Sixth Circuit Court of Appeals and could ultimately reach the U.S. Supreme Court.
A federal judge in Michigan issued a forceful judgment Wednesday against Polymarket, ruling that sports-related prediction market wagers do not constitute swaps under the CFTC’s jurisdiction.
A U.S. District Court judge in the Western District of Michigan denied Polymarket’s request for a preliminary injunction against Michigan regulators, who seek to restrict the prediction market platform from offering sports-related wagers in the state. The state says such wagers constitute illegal sports betting, while Polymarket claims they should be considered swaps under the federal purview of the CFTC.
In denying Polymarket’s preliminary injunction, Judge Paul L. Maloney made clear his belief that the company is not likely to succeed on the merits of the case. He also said explicitly that Polymarket’s sports-related wagers are not swaps, and therefore should not be regulated by the CFTC.
Under President Donald Trump’s second administration, the CFTC has aggressively claimed that it was given the authority to regulate prediction markets by existing laws, namely the Dodd-Frank Act of 2010. In recent months, the CFTC has gone so far as to sue several states attempting to curb the proliferation of prediction markets—a trend the White House has enthusiastically embraced.
Judge Maloney poured cold water on the CFTC’s legal posturing in Wednesday’s ruling.
“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,” Maloney said.
“Congress is not so cavalier with the fundamental federalist structure of the government,” he continued. “[T]he 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 the last year, federal judges across the country have weighed in on the same question as prediction market platforms, aided by the Trump administration, battle it out with state regulators in red and blue states alike. In the Sixth Circuit, for instance—which includes federal courts in Michigan, Ohio, Kentucky, and Tennessee—one Ohio federal judge sided with state regulators in March. Another federal judge in Tennessee sided with prediction markets in February.
The Sixth Circuit Court of Appeals is set to begin deliberating the matter later next month, now that two courts under its purview have sided with state regulators, and one with prediction markets and the CFTC. The matter is likely to ultimately be decided in coming years by the U.S. Supreme Court.
