Polymarket’s Fight Is for Next Generation of Financial Markets

The ongoing legal slugfest between prediction markets and state-level gambling regulators reached a new flashpoint on March 4, as Polymarket filed a preemptive federal lawsuit against Michigan Attorney General Dana Nessel.

This action follows in the footsteps of the seven “first strike” federal lawsuits that Kalshi has filed against state regulators to prevent them from enforcing state gambling laws on prediction market contracts.

This latest conflict turns on whether the federal Commodity Exchange Act (CEA) preempts state gambling laws in Michigan—specifically, whether these platforms are “financial instruments” regulated by the federal government or “illegal wagers” subject to state police powers.

The Catalyst

Polymarket’s lawsuit was triggered by the Michigan attorney general filing a civil enforcement action against Polymarket’s primary domestic competitor, Kalshi, just two days earlier.

The attorney general sued Kalshi in Michigan state court, specifically Ingham County’s 30th Judicial Circuit Court. Her complaint was blunt: Kalshi was operating as an “unlicensed sportsbook” by offering “sports event contracts” to Michigan residents without obtaining a state gaming license.

The key sticking point for Michigan is the volume of sports-related trading. Regulators point out that while Polymarket rose to fame on election betting, a massive portion of its 2025 volume—which hit an estimated $44 billion industry-wide—comes from sports. States argue that the “financial instrument” label is a “legal fiction” used to bypass the high taxes and consumer protections required of licensed sportsbooks.

Nessel’s argument represents a growing trend among state regulators. By framing prediction market contracts—such as “Will the Detroit Pistons win their next game?”—as sports betting, states are attempting to force these platforms into the same tax and regulatory frameworks as DraftKings or FanDuel.

Polymarket’s Preemptive Strike

Rather than wait for Michigan to come for them next, Polymarket’s US entity (QCX LLC) filed its own suit in the US District Court for the Western District of Michigan.

This proactive maneuver is designed to avoid state court, where regulators have recently found success, and state attorneys general are perceived as having a home-court advantage.

Polymarket’s legal team relies heavily on the CEA, just as other predictive markets companies have done in the sister lawsuits around the country. Their argument rests on three main pillars.

First, exclusive jurisdiction/field preemption. Polymarket contends that because it’s a federally registered designated contract market, the Commodity Futures Trading Commission has sole authority over its products.

Second, that Polymarket deals in financial instruments rather than gambling. The lawsuit argues that what Michigan labels “gambling” is, under federal law, a “binary option” or “derivative.” These are used for hedging risk and price discovery, not merely for entertainment.

Third, Polymarket argues it will suffer irreparable harm from state-level enforcement that would require the company to “geofence” Michigan, effectively fragmenting a national market and destroying the liquidity necessary for the platform to function.

Political Context

Under the Trump administration, the CFTC has undergone a recent and radical shift in its stance toward prediction markets.

New CFTC Chairman Michael Selig has become a vocal ally of platforms such as Polymarket and Kalshi. Selig rescinded Biden-era rule proposals that sought to ban political and sports-related contracts. He has publicly criticized “overzealous state governments” for attempting to undermine federal authority.

“The CFTC will no longer sit idly by while state governments undermine the agency’s exclusive jurisdiction over these markets,” Selig wrote.

This federal backing gives Polymarket a powerful shield. The company’s lawsuit even cites Selig’s public statements as evidence that Michigan is overstepping its constitutional bounds in light of the Supremacy Clause.

Why Michigan Matters

Michigan is a critical battleground because it’s the first state where the “dual-track” legal strategy is being tested so aggressively. Currently, there are two simultaneous cases in two different court systems: Nessel v. Kalshi in state court, and Polymarket v. Nessel in federal court.

If Michigan wins in state court, it sets a precedent that states can issue injunctions against these platforms regardless of their federal status. If Polymarket wins in federal court, it could effectively “immunize” prediction markets from state gambling laws. No matter what, appeals are nearly guaranteed given the high stakes.

But if the state and federal courts reach inconsistent opinions in the same state, at the same time, the level of risk and confusion is likely to exceed anything seen in the other lawsuits to date. A patchwork regulatory landscape may force predictive markets platforms to geofence certain states, creating a “Swiss cheese” map where you can bet on the NBA in Ohio but not in Michigan or Nevada.

What Happens Next?

The outcome of the Michigan cases will likely influence dozens of other states currently watching from the sidelines. In a major blow to the predictive markets industry, Nevada has already successfully moved to remand a similar dispute with Kalshi back to state court.

With a friendly federal regulator now actively supporting the private sector over state regulators in this arena, the industry is more emboldened than ever to fight back.

Inevitably, the conflict between the CEA and state police powers is heading for the US Supreme Court. The question of whether the CFTC has exclusive regulatory jurisdiction or whether states can enforce their gambling prohibitions is fundamentally a constitutional issue.

Circuit splits are going to create an untenable environment for companies that do business across state lines. Pressure will build at the high court to definitively resolve the question, providing a uniform rule nationwide.

Conclusion

Polymarket suing Michigan is more than just a corporate dispute; it’s a fight for the identity of the next generation of financial markets. Is a prediction on a basketball game a bet or a data point?

As Michigan and Polymarket lock horns, the answer will determine whether these platforms become the new standard for global forecasting or remain relegated to the shadows of the unlicensed gambling world.

The cases are QCX, LLC v. Nessel, W.D. Mich., No. 1:26-cv-00710, complaint filed 3/4/26 and Nessel v. KalshiEX LLC, Mich. Cir. Ct., No. 26-001087-CZ, complaint filed 3/3/26.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Kevin B. Frankel is partner at Benesch and chair of the firm’s state attorneys general practice.

Write for Us: Author Guidelines