Prediction Markets Suffer Legal Setbacks, but Will That Slow Their Growth?

Prediction market platforms Kalshi and Polymarket were both handed negative judgments in legal battles in Ohio and Michigan, but will the rulings slow the companies’ rapid growth?

In Ohio, a judge denied Kalshi’s motion for a preliminary injunction. In the ruling, the judge wrote that the court sided with Ohio’s gambling regulator in finding that sports markets do not fall under the “swaps” category of the Commodity Exchange Act.

The document stated that swaps were designed as “a system to deter market disruptions, ensure financial integrity, avoid systemic risk, protect market participants from fraud and abuse, and promote responsible innovation.”

It added, “Currency exchange rates, the weather, and energy costs all do that; the number of points scored in the Huskies-Bobcats game does not.”

Ohio vs. Kalshi Began Last Year

Kalshi filed a lawsuit against the Ohio Casino Control Commission (OCCC) and the state’s Attorney General in October last year. This came in response to the OCCC issuing a cease-and-desist letter to the company in April last year.

Kalshi has immediately appealed against the ruling, as it has done in several other states that have also denied its motions for injunctions.

In Connecticut, New York, Maryland, and Massachusetts, judges rejected Kalshi’s arguments but agreed to pause any enforcement action pending appeals. The same is likely to happen in Ohio.

The ruling is a small victory for state regulators. New York and Connecticut moved quickly to file the ruling to support their cases against Kalshi.

Polymarket Also Suffers Setback in Michigan

Meanwhile, Polymarket received a similar ruling in its legal fight in Michigan. The company filed a lawsuit against Michigan Attorney General Dana Nessel last week after she sued Kalshi.

In his judgment, Judge Paul L. Maloney referenced the lack of a clear legal status of sports prediction markets. He wrote, “Plaintiff (Polymarket) certainly presents issues warranting further argument and examination. Courts across the country have reached different conclusions, and no appeals court has yet provided conclusive guidance.”

However, he added that questions at the heart of the issue do not favor Polymarket, so he saw no reason to grant a temporary restraining order. Judge Maloney added that the case “shall proceed as usual under the Court’s rules.”

The fates of Kalshi and Polymarket appear interlinked with judgments against either company likely to be used in other legal battles. Mick Bransfield, who highlighted the two judgments on social media, maintains a website for keeping up to date with all the rulings.

Currently, there are ongoing legal battles against prediction market platforms in at least 18 states, with some lawsuits also brought by tribal gaming groups and users.

Supreme Court Ruling Could Come Next Year

The real battle looks set to take place in the Supreme Court. Lawyer Andrew Kim, who has followed the litigation involving prediction markets, said he believes there could be a Supreme Court decision in 2027.

However, he also said it could be much later. Speaking at an event this week, Kim stated, “We could conceivably get a decision as soon as the next year and a half … [but] it could be much further down – it could be 2029, and so I think a lot of this depends on what the courts of appeals decide.”

He added that he expected there to be disagreements between judges in different states. The trend appears to favor regulators, with only Tennessee and New Jersey granting injunctions. Nevada also initially granted Kalshi an injunction, but later dissolved it.

Also appearing on the panel, former Commodity Futures Trading Commission (CFTC) General Counsel Rob Schwartz said, “No one knows what the Supreme Court is going to do,” and added that it could be perfectly possible for a future presidential administration to unwind some of the recent changes.

President Donald Trump‘s appointment to lead the CFTC, Michael Selig, has vowed to defend prediction markets in their legal battles. Under the Biden administration, the CFTC was active in opposing prediction markets, filing lawsuits against both Kalshi and Polymarket.

The recent rulings against Kalshi and Polymarket represent a small setback, but they are unlikely to make much difference to the platforms’ operations as they target additional users across more states and countries worldwide.