The Walls Close In on Prediction Markets: A Michigan Court and a 50-Group Coalition Pile On in One Day

What Happened

Prediction markets got squeezed from two directions on the same day. In Michigan, a federal judge declined to protect Polymarket from state gambling regulators, ruling the platform had not shown it was likely to win its core argument that sports event contracts sit under the exclusive jurisdiction of the Commodity Futures Trading Commission. At nearly the same hour in Washington, a coalition of more than 50 gaming associations, tribal governments and labor unions was pressing the Senate to write a sports-betting ban directly into the crypto market-structure bill moving through Congress.

Judge Paul Maloney found that the statutory definition of a 'swap' under the Commodity Exchange Act is ambiguous, and that Polymarket's reading — that its event contracts qualify — would effectively drain the term of meaning. Crucially, the court said the company failed to provide evidence for why the swap definition should stretch to cover bets on who wins a game. Without that, there is no federal preemption, and state regulators in Michigan keep their teeth.

The Two Fronts

The legal front is genuinely split. The Michigan setback lands just weeks after a three-judge panel of the Third Circuit ruled 2-1 in April that New Jersey could not enforce its gambling laws against Kalshi's sports contracts. Same question, opposite answers — which is exactly the kind of circuit-level disagreement that tends to march toward the Supreme Court. The CFTC, for its part, has reaffirmed in court filings that it views prediction markets as its exclusive turf and has even sued states to make the point stick.

The legislative front may matter more in the short run. The gaming coalition — anchored by the American Gaming Association and the Indian Gaming Association — wants senators to fold explicit carve-out language into the Digital Asset Market Clarity Act, declaring that sports betting falls outside the CFTC's remit and cannot be offered through prediction-market platforms. Their letter to the Senate frames CLARITY as the faster path than a standalone bill. That standalone effort already exists: in March, Senators Adam Schiff and John Curtis introduced the bipartisan Prediction Markets Are Gambling Act aimed squarely at Kalshi and Polymarket's U.S. exchange.

Why It Matters

Sports and election contracts have been the rocket fuel behind prediction markets' explosive 2025-2026 growth, drawing in volume that rivals regulated sportsbooks. If Congress writes a sports carve-out into CLARITY, the most lucrative product line on these platforms could be legislated away in a single clause — no court fight required. The Michigan ruling shows the alternative path to the same destination: a patchwork of states picking off platforms one jurisdiction at a time while the federal preemption argument remains unproven.

It is worth noting the competitive backdrop. Kalshi CEO Tarek Mansour said this week that Polymarket is not even his main rival, naming CME, Robinhood and DraftKings as the bigger threats — a reminder that prediction markets are now colliding head-on with both Wall Street and the legacy gambling industry. That collision is precisely why the lobbying has gotten so fierce.

What's Next

Watch the Senate floor. The Banking Committee already advanced its version of CLARITY, and whether a sports-betting ban survives into the final text is now the single biggest regulatory question hanging over Kalshi and Polymarket. On the legal side, the growing split between the Michigan and Third Circuit rulings keeps the door open for higher-court review. Either way, the era of prediction markets operating in a gray zone is ending — the only question is who draws the lines, the courts or Congress.

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