Michigan Judge Denies Polymarket and Robinhood Injunctions, Says Sports-Event Contracts Likely Are Not Swaps

A federal judge in Michigan denied preliminary injunction requests by Polymarket and Robinhood, concluding that the companies were unlikely to succeed in challenging Michigan’s efforts to regulate sports-event contracts under state gambling laws.

In two nearly identical opinions, U.S. District Judge Paul Maloney rejected arguments that sports-event contracts qualify as swaps under the Dodd-Frank Act. The judge also questioned whether Congress ever intended federal commodities regulation to displace state authority over gambling.

Plaintiff thus has not met its burden to show a likelihood of success on the merits, and the cloudy legal forecast weakens its showings on the other factors,” Maloney wrote. “Plaintiff’s motion for a preliminary injunction will thus be denied.”

The rulings arrive one week before Maloney is scheduled to hear arguments on Michigan’s motion to remand a separate lawsuit against Kalshi to state court after the company removed the case to federal court.

Judge Says Sports-Event Contracts Likely Are Not Swaps

Both Polymarket and Robinhood argued that the sports-event contracts at issue fall within the Commodity Exchange Act’s (CEA) definition of swaps. The companies argued that, as swaps, the contracts fall under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC).

Maloney disagreed.

In the Court’s judgment, the statutory definition of ‘swap’ is ambiguous, and the context of the statute and the presumption against intruding into traditional areas of state authority lead to the conclusion that Plaintiff’s products are not included in it.”

The opinions devote substantial attention to the legislative history of Dodd-Frank. They concluded that Congress enacted the statute to regulate over-the-counter derivatives markets following the 2008 financial crisis rather than sports-event trading.

The primary issue it set out to solve had nothing to do with sports-related contracts,” Maloney wrote.

“The markets with which Congress was concerned were dominated by large financial institutions and did not involve individuals staking relatively small amounts of money on the outcome of a football game.”

The judge further noted that Congress was focused on systemic financial risk arising from complex derivatives markets, not contracts tied to sporting outcomes.

According to the opinions, neither the text nor the structure of Dodd-Frank suggests Congress intended to transform sports wagering into federally regulated derivatives trading.

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,” Maloney wrote.

Court Finds No Clear Congressional Intent to Preempt Gambling Laws

Maloney concluded that even if sports-event contracts fell under the CEA, the plaintiffs had not established that federal law clearly displaced state gambling regulation.

There is no clear statement that Congress intended to supersede the states’ traditional role in regulating gambling.”

Relying heavily on the U.S. Supreme Court’s decision in Bond v. United States, Maloney emphasized that courts should not assume Congress intended to intrude upon traditional areas of state authority absent explicit language.

It is well-established that the regulation of gambling … is a legitimate state interest,” the judge wrote. “A state’s gambling laws reflect ‘the state’s paramount interest in the health, welfare, safety, and morals of its citizens’ and thus ‘lie[] at the heart of the state’s police power.’”

The opinions rejected the notion that Congress silently transferred that authority to federal regulators through Dodd-Frank.

Judge Warns Against Expansive View of Derivatives

A recurring theme throughout both opinions is the concern that the plaintiffs’ interpretation of federal derivatives law would dramatically expand federal authority beyond what Congress intended.

The term ‘swap’ becomes so broad that it sweeps in any agreement or transaction dependent on anything happening that could conceivably result in any degree of financial consequence for anyone,” Maloney wrote.

The judge warned that such an interpretation would extend beyond gambling and potentially affect numerous areas traditionally governed by state law.

This would intrude not only on the province of state gambling law but also contract law (service contracts), property law (mortgages), and family law (prenuptial agreements), among others.”

Maloney then delivered one of the opinion’s strongest criticisms of the plaintiffs’ position.

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 continued:

Congress is not so cavalier with the fundamental federalist structure of the government, and 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.”

Opinions Push Back on Favorable Prediction Market Rulings

Maloney specifically discussed the Third Circuit’s April decision in Kalshi’s dispute with New Jersey. The panel found that sports-event contracts could qualify as swaps because sporting outcomes may entail economic or commercial consequences.

According to Maloney, the Third Circuit “did not explain what ‘associated with’ meant or articulate any limit on the chains of association.”

The Michigan opinions instead conclude that accepting such a broad interpretation would effectively allow almost any event to be transformed into a federally regulated derivative so long as some downstream economic consequence could be identified.

The criticism is notable because the Third Circuit’s decision currently represents the strongest appellate-level victory for Kalshi in its ongoing disputes with state regulators.

Rulings Deepen Sixth Circuit Split

The decisions add to a growing divide among the Sixth Circuit’s federal courts over sports-event contracts.

In February, U.S. District Judge Aleta Trauger granted Kalshi a preliminary injunction against Tennessee regulators. Trauger concluded that the company was likely to succeed on its argument that sports-event contracts qualify as swaps regulated by the CFTC and that federal law likely preempts state enforcement efforts.

Maloney’s decisions join a recent Ohio ruling in reaching conclusions different from those of Tennessee.

In Ohio, U.S. District Judge Sarah Morrison denied Kalshi’s request for a preliminary injunction. Morrison concluded that sports-event contracts are likely outside the definition of swaps.

The court warned that accepting Kalshi’s interpretation could effectively require all sports betting activity to be conducted through designated contract markets rather than state-licensed sportsbooks.

The conflicting rulings have created a split within the Sixth Circuit over central legal arguments regarding prediction markets. The divide could receive some clarity when the Sixth Circuit hears oral arguments in Tennessee’s appeal on July 30.