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A Michigan court’s order blocking Kalshi’s sports event contracts has escalated into one of the most significant jurisdictional battles yet over prediction markets, with the Commodity Futures Trading Commission now ordering the exchange to honor trades that a state judge said should be unwound.
On June 29, an Ingham County Circuit Court judge issued a temporary restraining order prohibiting Kalshi from offering sports event contracts to Michigan residents. The order also required the company to void certain trades placed after the ruling, marking one of the strongest state actions yet against a federally regulated prediction market.
The case centers on whether sports event contracts fall exclusively under federal oversight or whether states may regulate them as gambling products.
CFTC orders Kalshi to honor disputed contracts
In response to the Michigan court order, Kalshi submitted an emergency rule to the CFTC that would have allowed it to liquidate affected Michigan positions and unwind the disputed trades.
Instead of approving the request, the CFTC exercised its emergency authority on July 14 to stay the rule change and directed Kalshi to fulfill the outstanding trades under its normal operating procedures while the agency reviews the proposal.
The commission said allowing executed trades to be canceled would undermine confidence in federally regulated derivatives markets. CFTC Chairman Michael S. Selig said states cannot compel a designated contract market to violate its obligations under the Commodity Exchange Act, arguing that federal law preempts conflicting state requirements.
Kalshi said it had already begun unwinding the affected trades to comply with the Michigan court order before the CFTC intervened.
“We are disappointed by this decision and believe it is unfair to Kalshi,” the company said in news reported on by Legal Sports Report.
“We already acted and unwound the trades, as the Michigan court order required us to do. We are being put in an impossible position, looking to follow state court orders that may contradict our federal regulatory obligations. We did not have a choice.”
90-day review could shape prediction market regulation
The CFTC’s stay triggers a review period of up to 90 days, during which the agency will determine whether Kalshi’s proposed emergency rule complies with federal law. During that time, the commission has instructed the company to continue honoring the disputed Michigan contracts.
The dispute has become a pivotal test of the growing conflict between state gaming regulators and the federal government over prediction markets. Michigan is one of several states challenging Kalshi’s sports event contracts, while the CFTC has increasingly argued that federally regulated prediction markets fall under its exclusive jurisdiction.
The outcome could influence how courts and regulators nationwide resolve the ongoing debate over whether sports prediction markets are financial derivatives or illegal gambling products under state law.
