Michigan Targets Kalshi as Polymarket and Robinhood Launch Federal Challenges
A growing legal battle over prediction markets intensified this week after Michigan filed a state lawsuit against Kalshi. Within 24 hours, Polymarket and Robinhood responded with federal lawsuits seeking to block the state from enforcing its gambling laws against federally regulated event contracts.
Michigan Attorney General Dana Nessel filed a civil enforcement action against prediction market platform Kalshi on Tuesday in Ingham County Circuit Court. The lawsuit seeks a permanent injunction preventing Kalshi from offering sports-related event contracts to Michigan residents.
The complaint alleges that Kalshi offers unlicensed sports betting to Michigan residents. It argues that the platform’s contracts function as gambling in everything but name.
The AG cited specific examples in the complaint, including a market on whether the Detroit Pistons and Washington Wizards would score more than 224.5 points combined. Nessel argues that such contracts are effectively sports wagers that fall under state gaming laws rather than federal commodities regulation.
The lawsuit followed several warnings from the Michigan Gaming Control Board over the past year.
The regulator wrote to the Commodity Futures Trading Commission (CFTC) in April 2025 to raise concerns about sports-event contracts. In October, it warned licensed Michigan sportsbooks not to enter the prediction market space themselves. Tuesday’s lawsuit represents the latest escalation in the dispute.
Nessel’s lawsuit makes Michigan the tenth state to engage the company in litigation and, crucially, only the third to sue Kalshi directly in state court.
State Court vs. Federal Court Approach
Michigan’s decision to file in state court carries significant implications. Kalshi has consistently argued that the Commodity Exchange Act (CEA) overrides state gambling statutes. Federal courts have historically responded more favourably to this argument than state courts.
Because of this, Kalshi has previously sued states in federal court to block enforcement actions, attempting to choose the legal battleground.
States have begun pushing back by filing cases in their own courts. By filing enforcement actions under state law, regulators hope to keep the dispute within state courts and avoid early federal rulings on preemption.
Massachusetts Set the Tone
Massachusetts provides the clearest example of this strategy. The Massachusetts Attorney General filed a lawsuit against Kalshi in state court in September 2025. Kalshi immediately attempted to move the case to federal court.
A federal judge rejected that request and returned the case to the state court. The ruling led to a first-of-its-kind preliminary injunction in January 2026.
The state court determined that Kalshi’s interpretation of the CFTC’s oversight powers was “overly broad.” The judge also concluded that Congress never intended to deprive states of their traditional authority to regulate gambling.
Kalshi later secured a stay of the injunction on Feb. 18 from the Massachusetts Appeals Court, allowing it to continue operating for now while the appeal proceeds.
A Big Win for State Authority in Nevada
Events in Nevada have followed a similar trajectory and moved especially quickly this week.
Kalshi previously secured an early decision in Nevada after a federal judge granted a preliminary injunction blocking state regulators from pursuing enforcement in April 2025. However, Judge Andrew P. Gordon later dissolved that injunction in November.
In February, the Ninth Circuit rejected Kalshi’s attempt to use that earlier ruling to prevent Nevada from filing a state court lawsuit. Nevada then filed its case on Feb. 17.
Kalshi immediately sought to transfer the case to federal court to halt the state action. However, U.S. District Judge Miranda Du denied that attempt and granted Nevada’s motion to remand on March 2. She ruled that the federal court “lacks subject matter jurisdiction,” meaning the case must proceed under state law.
The Nevada Gaming Control Board can now seek a temporary restraining order in state court that could block Kalshi from operating fully in the state.
Legal analysts have described Judge Du’s decision as a significant setback for Kalshi. The decision moves the company closer to being geofenced in the state.
The ruling could also trigger ripple effects in other jurisdictions. Kalshi has repeatedly argued that forcing the company to geofence states would cause “irreparable harm” to its platform. If regulators successfully impose geofencing in even one state, that argument becomes weaker in other states.
Gaming attorney Daniel Wallach suggested that Kalshi may seek an expedited stay from the Ninth Circuit or file an emergency application with the U.S. Supreme Court. Otherwise, the company may need to withdraw from Nevada within weeks.
Polymarket Fires Back at Michigan
Just a day after Michigan filed its state lawsuit against Kalshi, prediction market platform Polymarket launched its own legal preemptive strike.
It filed a lawsuit in the U.S. District Court for the Western District of Michigan, seeking a court order blocking the state from enforcing its gambling laws against the platform. Defendants include Nessel and members of the Michigan Gaming Control Board.
Kalshi has used this approach in other states. The company first filed federal lawsuits on its own terms to advance its preemption argument before state regulators could act. Michigan took action against Kalshi without sending a cease-and-desist letter or warning, which showed Polymarket that enforcement was “real and imminent.”
Polymarket’s complaint presents the platform as more like a stock exchange than a sportsbook. The company says it acts as a middleman and charges a flat transaction fee to match buyers and sellers. It does not set the odds or act as the house.
The complaint also references comments made by CFTC Chair Michael Selig in recent months. He repeatedly said the CFTC has exclusive jurisdiction over prediction markets under the CEA. Polymarket argues that the federal government has already answered the jurisdictional question and that Michigan is ignoring it.
Polymarket claims that even a meritless enforcement action by Michigan would create problems with commercial agreements, scare off potential business partners, and force the company to consider geofencing Michigan. The company says that geofencing the state would hurt the overall market by significantly reducing the number of traders and affecting liquidity.
Robinhood Joins the Legal Fight
Later the same day, Robinhood also filed a federal lawsuit against Michigan officials seeking declaratory and injunctive relief.
The brokerage firm argues that Michigan cannot apply its gambling laws to sports-related event contracts traded on federally regulated markets.
Like Polymarket, Robinhood contends that the CEA gives the CFTC exclusive authority over derivatives exchanges and event contracts listed on designated contract markets.
Robinhood currently offers prediction market contracts through a partnership with Kalshi.
CFTC Continues to Assert Its Authority
The CFTC continues to assert that it holds full regulatory authority over prediction market platforms.
Selig has adopted an increasingly bullish tone in recent public remarks. Speaking on Tuesday at the Milken Institute’s Future of Finance event, he said regulators treat prediction market platforms like any other futures exchange. According to Selig, such exchanges implement strict risk controls and compliance requirements for brokers.
The CFTC Chair compared prediction markets to regulated pharmaceuticals, which must meet stringent requirements before entering the market. He said that companies can offer supplements with fewer regulatory requirements.
He aimed to show how traditional sportsbooks can “serve a bunch of alcohol to people” while still allowing them to bet on sports. In his view, prediction markets and sportsbooks can “exist in parallel.”
At the same time, Selig emphasized that the CFTC asserts its authority whenever it sees states “getting a little ahead of themselves.”
Selig argued that prediction markets play an important role in the U.S. He said that widespread “disinformation, hoaxes, and fake news” distort public perception. He added that some individuals seek to control information gatekeepers and manipulate polling narratives ahead of elections.
Prediction markets, he said, can provide clearer signals about real-world expectations. Without proper regulation, consumers could turn to black-market platforms.
Planned CFTC Rules
Selig confirmed that the CFTC plans to develop clearer regulatory frameworks. The agency will release guidance soon and establish clear standards outlining what firms can self-certify in the market. Regulators will soon publish an advanced notice of proposed rulemaking to guide the industry going forward.
The Michigan case underscores the widening divide between state regulators and federal authorities over how to treat prediction markets. While state gaming agencies increasingly view the contracts as unlicensed sports betting, the CFTC continues to treat them as legitimate financial instruments under federal commodities law.
As more states move to challenge Kalshi directly in state courts, the conflict is increasingly likely to produce a definitive ruling on where regulatory authority ultimately lies.
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