Prediction market platform Kalshi says it has been placed in an impossible position after receiving conflicting directives from federal and state regulators over its sports event contracts in Michigan, highlighting the growing legal battle over who has authority to regulate prediction markets in the United States.
The dispute stems from opposing orders issued by a Michigan state court and the US Commodity Futures Trading Commission (CFTC), leaving Kalshi caught between complying with state law and meeting its federal regulatory obligations.
Conflicting orders create legal uncertainty
On June 29, Michigan’s Ingham County Circuit Court ordered Kalshi to stop offering sports-related prediction contracts to users in the state while an ongoing lawsuit determines whether the platform’s products violate Michigan’s sports betting laws.
Following the ruling, Kalshi said it complied with the court’s instructions by unwinding affected trades.
However, the situation took a dramatic turn when the CFTC directed the company to continue operating and instructed it not to cancel executed contracts, arguing that Michigan’s order conflicts with federal commodities law.
Kalshi says it had no choice
Kalshi’s Head of Enforcement and Legal Counsel, Robert DeNault, said the company was forced to comply with the Michigan court order despite now facing contradictory federal instructions.
According to DeNault, Kalshi had already reversed the affected transactions as required by the state court, leaving the company trapped between two authorities issuing incompatible legal obligations.
He described the situation as unfair, stating that the platform is attempting to follow state court orders while also remaining compliant with federal regulations.
CFTC defends federal oversight
The CFTC argues that prediction market contracts regulated under the Commodity Exchange Act fall under federal jurisdiction and warned against state interference in already executed derivatives transactions.
CFTC Chair Michael Selig called Michigan’s action unprecedented, warning that canceling completed trades could undermine confidence in financial markets and create uncertainty for market participants.
According to the regulator, allowing states to unwind federally regulated contracts could weaken the legal certainty required for properly functioning derivatives markets.
A broader regulatory battle
The dispute reflects a larger jurisdictional conflict between the CFTC and nearly two dozen US states that have challenged the legality of sports-related prediction markets.
Several state regulators argue that event contracts tied to sporting outcomes closely resemble sports betting and should therefore be regulated under state gambling laws.
Kalshi, meanwhile, maintains that its contracts are federally regulated financial derivatives operating under CFTC oversight.
Kalshi said it is reviewing the CFTC’s directive and evaluating its legal options as the conflict between federal and state authorities continues.
The outcome of the Michigan case could have significant implications for the future of prediction markets in the US, potentially determining whether these platforms are primarily governed by federal commodities law or state gaming regulations.
As prediction markets continue to grow in popularity, the case is expected to become a landmark test of regulatory authority over this emerging sector.
