Federal Judge: Sports Prediction Markets Exempt from CFTC Oversight

Federal Judge Rejects CFTC’s Claim Over Sports Prediction Markets

A federal judge in Michigan delivered a significant blow Wednesday to Polymarket, ruling that sports-related prediction market wagers do not fall under the jurisdiction of the Commodity Futures Trading Commission (CFTC) as swaps.

In a decision from the U.S. District Court for the Western District of Michigan, Judge Paul L. Maloney denied Polymarket’s request for a preliminary injunction against Michigan regulators. State officials are seeking to prevent the prediction market platform from offering sports wagers within the state, arguing they constitute illegal sports betting. Polymarket, conversely, contends these wagers should be classified as swaps, placing them under the federal purview of the CFTC.

Judge Maloney’s denial of the preliminary injunction clearly indicated his belief that Polymarket is unlikely to prevail on the merits of the case. He explicitly stated that the company’s sports-related wagers are not swaps and therefore should not be regulated by the CFTC.

The CFTC, under the Trump administration, had asserted that existing laws, particularly the Dodd-Frank Act of 2010, granted it the authority to regulate prediction markets. In recent months, the commission has taken action against several states attempting to restrict the growth of these markets, a trend that had received enthusiastic backing from the White House.

Judge Maloney’s ruling appears to temper the CFTC’s aggressive legal stance. “Plaintiff’s vision of the scope of derivatives is so vast that it would encompass vast swaths of activity never understood to be associated with the financial industry and instead traditionally associated with core state, as opposed to federal, responsibilities,” Maloney wrote.

He further elaborated, “Congress is not so cavalier with the fundamental federalist structure of the government. [T]he Court is convinced that its laws in the wake of the 2008 financial crisis were not aimed at fundamentally redefining the balance between the federal and state governments in ways unrelated to the problems it set out to solve.”

This legal battle over prediction markets, with platforms often backed by the Trump administration clashing with state regulators in both Republican and Democratic states, has seen federal judges across the country weigh in over the past year. In the Sixth Circuit, which encompasses federal courts in Michigan, Ohio, Kentucky, and Tennessee, a federal judge in Ohio sided with state regulators in March, while a judge in Tennessee ruled in favor of prediction markets in February.

The Sixth Circuit Court of Appeals is expected to begin deliberations on the matter later next month. With two courts under its purview having ruled in favor of state regulators and one supporting prediction markets and the CFTC, the ultimate resolution of this complex issue is likely to be decided by the U.S. Supreme Court in the coming years.