Polymarket has deployed a new legal defense in Ohio for prediction markets as scrutiny over their event contracts continues to grow nationwide.
The majority of squabbles between prediction operators and state officials have followed the same series of steps, with prediction companies ultimately arguing that their federal regulation preempts state interference. However, Polymarket turned the tables in its new filing in Ohio.
Polymarket takes Ohio to task
Polymarket is hoping to procure preliminary and permanent injunctions against Ohio after the state ordered it to shut down sports event contracts and provide a written confirmation of compliance by Oct. 16.
Gambling law expert Daniel Wallach shared on Monday that Polymarket challenged the constitutionality of Ohio’s attempt to regulate its event contracts via its sports betting laws. But quite surprisingly, it also accused the state of violating the Commerce Clause.
The Commerce Clause, or Article I, Section 8, Clause 3 of the U.S. Constitution, gives the federal government the power to regulate commerce between nations, among states, and with native tribes. It also prevents states from impeding interstate commerce.
Polymarket alleged that Ohio was discriminating against interstate commerce by highlighting the state’s sports betting laws, which include licensing provisions that require a physical presence inside the state, including physical servers.
“These discriminatory, balkanizing measures violate the Constitution’s promise of open, interstate commerce,” Polymarket claimed in its lawsuit. “And, under settled precedent, they are unlawful.”
Polymarket also claimed that Ohio’s licensing provisions favor entities with longer physical tenures and infrastructural spending in the state.
The complaint also regurgitated that same argument made by prediction market operators across the country, which is that the Commodity Futures Trading Commission (CFTC) is awarded regulatory power ahead of state gaming officials though the Commodity Exchange Act (CEA).
Does an unadopted proposal matter?
Polymarket coming to the table with a new point of contention could be key to winning its ongoing dispute in Ohio.
The company’s top rival, Kalshi, was denied a preliminary injunction by the Sixth Circuit Court on Sept 25., after it was determined that Kalshi failed to prove that its sports event contracts should be classified as swaps.
Polymarket, in its attempt to continue regular operations in Ohio, highlighted the CFTC’s proposed rule change to explicitly list sports event contracts as a type of swap, a move that would greatly support prediction markets in their fights against state entities.
The proposal has not been officially adopted and codified into law.
Ohio balks at prediction markets
Ohio sent cease-and-desist letters to 10 companies, including Polymarket, that operated prediction markets.
It’s par for the course for operators to put up a fight by seeking injunctions and referring to the CEA and the U.S. Constitution’s Supremacy Clause. If Polymarket were able to secure an injunction against Ohio on the back of interstate commerce law, it would almost inevitably lead operators in Ohio and other states that are under attack to make the same reference in courts across the country.
States have become increasingly successful in their bids to slow the sweeping momentum of the prediction industry, although markets are still available in nearly every state. Analytics platform DeFi Rate reported that operators generated $107.5 billion in contract trades during the 30-day period that ended on Oct. 21.
Polymarket US was responsible for $12.7 billion (11.8%) of the total trading count. Kalshi led all operators with a dominant $81.5 billion (75.9%) share.
The Trade Handle Prediction Markets Take
The Interstate Commerce Act was approved in 1887. Nearly 140 years later, it is being referenced by Polymarket as an innovative, albeit unproven, way to stop state regulation over prediction markets. The court’s response and eventual decision to award or deny an injunction against Ohio regulators will set a critical nationwide precedent.