The Commodity Futures Trading Commission (CFTC) directed Kalshi to continue offering sports-related prediction markets in Michigan, escalating a feud with state officials.
Michigan attorney general Dana Nessel secured a temporary restraining order in late June that ordered Kalshi to discontinue its sports event contracts. The new directive from the CFTC claimed that state officials did not have the authority to prevent prediction operators from fulfilling their operational duties.
The CFTC takes a hard stance
This is the most direct intensification of tensions between state and federal regulators relative to prediction markets.
Issuing cease-and-desist orders and securing temporary restraining orders have long been solutions for slowing the spread of prediction outlets. The CFTC’s intervention and increasing willingness to engage local regulators indicate that they are no longer foolproof plans.
“A state cannot force a [Designated Contract Market] (DCM) to violate its obligations, and federal law does not permit a DCM to discriminate against a state’s residents,” CFTC Chairman Michael Selig said Tuesday in a statement. “Canceling trades that have already been executed is an unprecedented step that risks a cascading effect on the entire marketplace and undermines the certainty in contracting that is a necessary component of a functioning market.”
Kalshi is a CFTC-licensed DCM that has been the face of America’s prediction market fad.
Upon Michigan receiving the temporary restraining order, Kalshi noted that it would violate state or federal decrees, regardless of its actions. Its CFTC-established guidelines stipulate that it must treat customers equally across all states, meaning that it should remain active and offer sports prediction markets to customers, but Michigan’s restraining order forbade that practice.
The legal dispute
AG Nessel, like many other state officials, accused Kalshi of operating an illegal gambling platform. This largely has to do with controversial sports event contracts, which allow users to purchase “Yes” and “No” outcomes associated with various events in sports.
Customers win or lose money depending on the accuracy of their predictions, but unlike sportsbook betting, they compete against consumers instead of the house.
“Our gambling laws exist to protect Michiganders from unlicensed, predatory operations, and failing to comply with them carries serious legal consequences,” Nessel said at the time the temporary restraining order was secured.
Michigan’s block on sports event contracts expired on Monday. Kalshi would not violate state regulations if it put sports contracts back on the market, which the CFTC is requiring.
It is possible for Michigan to obtain another temporary restraining order.
“The Commission will not allow states or state courts to bully registered entities into violating the Commodity Exchange Act and CFTC regulations,” Selig said Tuesday.
Supporting prediction markets
The CFTC’s interest in Michigan is not exclusive. It has pending litigation against Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin. It also filed amicus briefs in Michigan’s Supreme Court.
Kalshi, powered by the FIFA World Cup, generated a $31 billion notional trading volume during June, while operators such as Polymarket and Robinhood helped produce $50 billion in combined industry-wide trades during the month. The industry’s sweeping momentum does not appear to be in danger of slowing down, especially with the NFL season and midterm elections on the immediate horizon.
The Trade Handle Prediction Markets Take
The increasing venom of state and federal regulators is bringing the fight over prediction markets to a level previously unseen. The CFTC had submitted lawsuits against states, but commanding a licensed platform to act in a way that directly contradicts a local restraining order is an obvious challenge to the state’s authority. As we’ve previously stipulated, the entire battle over prediction markets feels destined to end in a Supreme Court case.