Michigan Sues Kalshi, While Polymarket Preempts Action With Its Own Lawsuit

Michigan Attorney General Dana Nessel has filed a lawsuit against Kalshi, alleging that the “so-called prediction market” is running an unlicensed sports betting operation.

The complaint states, “Kalshi offers an online sports betting operation to residents in the State of Michigan without the licensing approval of the Michigan Gaming Control Board. Specifically, Kalshi operates a so-called prediction market through which residents of the State of Michigan can engage in unlicensed gambling under the guise of trading event contracts.”

It goes on to give numerous examples of markets Kalshi offers that violate state laws, including markets for hockey, golf, college basketball, and the NBA.

“In each case, the bettors’ return is determined entirely by an outcome outside their control,” says the lawsuit.

The state becomes the third to file a lawsuit against the company, joining Massachusetts and Nevada. In Massachusetts, a judge initially ordered Kalshi to block users from accessing the platform, but has agreed to put that on pause pending an appeal.

Polymarket Files Its Own Lawsuit

In a preemptive move, Polymarket filed its own lawsuit against Nessel. The company filed its action in federal court, where prediction markets have sought to keep legal fights.

The lawsuit cites concerns that the company faces an “immediate and concrete” threat following Michigan’s action against Kalshi.

The filing states, “This action seeks to prevent imminent and irreparable harm arising from Michigan’s enforcement of state gambling laws against federally regulated derivatives exchanges.”

Coinbase made a similar move in December, and Polymarket did the same in Massachusetts. Kalshi has also preemptively sued regulators in several other states, but the company will now have to fight to take its battle into federal court.

Nessel will likely ask that the case against Polymarket be moved to state court, as Nevada successfully did in its battles with Kalshi and Polymarket.

Oral arguments are due this week in the Coinbase v. Michigan case. Polymarket and Kalshi will undoubtedly be monitoring those closely, hoping to use similar arguments to defend their positions.

CFTC Vows to Defend Prediction Markets Against States

The CFTC, however, has insisted that the markets are fair and legal and that it has exclusive jurisdiction over regulating prediction markets, such as Kalshi.

Chair Michael Selig initially said it would be up to the courts to decide which markets violate state laws, but he recently changed that stance and has vowed to defend companies against state litigation.

Last month, Selig stated, “The most common allegation is that these contracts are a form of gambling and therefore subject to state laws. The CFTC will no longer sit idly by while overzealous state governments undermine the agency’s exclusive jurisdiction over these markets by seeking to establish statewide prohibitions on these exciting products.”

March Madness Dominates Kalshi Trading

In the last month, users have traded over $9 billion at Kalshi, with over 80% of that volume on sports. As March Madness approaches, college basketball is the biggest category, with almost $2 billion traded on games.

It was March Madness last year when state regulators first began taking exception to the prediction-market platform. Gambling regulators in Ohio, Nevada, New Jersey, and Illinois were the first to send cease-and-desist letters to Kalshi.

Michigan did not follow, but opened an investigation in April last year. The Michigan Gaming Control Board then filed a letter with the Commodity Futures Trading Commission (CFTC) in October expressing concern over sports prediction markets.

The battle between states and prediction market platforms shows no signs of letting up, but there also looks to be little chance of any resolution in the near future.