Michigan Sues Kalshi Over Alleged Illegal Gambling; Prediction Market Rivals Countersue

^{Dana Nessel, Attorney General of Michigan, leads yet another lawsuit against Kalshi over its sports event contracts.
(Photo: Mandi Wright / Detroit Free Press via ZUMA Press Wire)}

Michigan became the latest state to launch a lawsuit against prediction market platforms on Tuesday, as Attorney General Dana Nessel filed a lawsuit against Kalshi’s parent company, KalshiEx LLC.

The lawsuit contends that Kalshi is unlawfully offering online sports betting in violation of Michigan law under the guise of sports event contracts. 

Lawsuit Triggers Response from Additional Prediction Markets

The lawsuit was filed in Ingham County Circuit Court, and specifically cites violations of Michigan’s Lawful Sports Betting Act (LSBA). 

“Corporations cannot circumvent state gaming laws,” Attorney General Nessel said in a statement. “My office will hold those who sidestep Michigan’s consumer protections accountable and ensure that betting in our state remains lawful, fair, and subject to the oversight our residents expect and deserve.”

The lawsuit seeks a permanent injunction and order of abatement preventing Kalshi from operating or advertising any sports betting services in Michigan. 

The filing was quickly followed by legal action from both Polymarket and Robinhood. Their parent companies filed lawsuits on Wednesday in the U.S. District Court for the Western District of Michigan, seeking to prevent similar action against their companies, as they say the Kalshi case threatens their own operations in the state.

The arguments in the Michigan cases mirror those across the country: a battle over whether prediction markets offering sports-event contracts are violating state gaming laws or are solely under the oversight of the federal Commodity Exchange Act.

State vs. Federal Regulation at Core of Prediction Market Dispute

Kalshi and its competitors argue that only the Commodity Futures Trading Commission has jurisdiction over event contracts, which they frame as derivatives and financial instruments. As such, its contracts are outside the jurisdiction of state regulators and are fundamentally different than sports betting. 

But state regulators have routinely dismissed these claims, since users can buy contracts with fixed payouts on the results of games, point spreads, totals, and other common betting markets. Simply offering them as derivatives isn’t enough to prevent them from being considered sports betting; therefore, they must comply with each state's rules.

Earlier this week, the Ninth Circuit Court of Appeals ruled that a case pitting Kalshi against regulators in Nevada will be sent back to state court. That will allow officials in Nevada to seek an injunction against Kalshi, after the federal court found that the Commodity Exchange Act “does not completely preempt” claims that sports event contracts violate state law. 

If Nevada is successful in seeking an injunction, it could temporarily prevent Kalshi from offering event contracts to users in the state. While Kalshi and other prediction platforms have argued that geofencing users by state would be prohibitively expensive and technologically complex, a successful injunction request by Nevada could put those claims to the test and potentially offer a pathway for other states pursuing similar actions.