CFTC backs Kalshi sports contracts despite Michigan court ruling
The Commodity Futures Trading Commission (CFTC) ordered Kalshi to continue trading sports event contracts in Michigan, despite a state court injunction requiring Kalshi to reverse the transactions. Initially, the court issued warnings to Kalshi for failing to comply with its directions, stating that the business would face daily fines of $120,000, which could increase to $500,000 per day if Kalshi fails to geofence Michigan by 12 August 2026.
The CFTC’s emergency action of 14 July 2026 creates an immediate dispute between federal and state officials over regulating the sports prediction market. The CFTC contends that Michigan’s activities would have an impact on the federally regulated derivatives market, while state officials claim that Kalshi’s contracts for sports events fit within unregulated sports betting in the state.
CFTC and Michigan in legal battle
The dispute began when Michigan officials argued that Kalshi was offering products similar to sports betting without the licences required for sportsbooks in the state. A Michigan court agreed, issuing a temporary restraining order that stopped Kalshi from offering sports event contracts to residents and required the exchange to unwind certain positions. The court also warned of financial penalties if deadlines were not met.
As a result, Kalshi filed an emergency rulemaking request with the CFTC, allowing it to liquidate the relevant positions in compliance with the State of Michigan’s mandate. This was denied because the CFTC used its emergency powers to prevent the cancellation of completed transactions. This is because states cannot order exchanges to reverse derivative transactions that have already occurred on a federal market.
Chairman Michael Selig emphasised that federally registered Designated Contract Markets must provide equal access to all eligible participants, regardless of state residence, and cannot discriminate against customers solely because a state regulator objects to certain contracts.
Selig stated, “A state cannot force a DCM [Designated Contract Market] to violate its obligations, and federal law does not permit a DCM to discriminate against a state’s residents. Cancelling trades that have already been executed is an unprecedented step that risks a cascading effect on the entire marketplace and undermines the certainty in contracting that is a necessary component of a functioning market.”
CFTC’s move
The CFTC’s emergency intervention marked a turning point in the debate over prediction markets. For the first time, the agency stopped one of its own registrants from complying with a state court order. Instead of allowing Kalshi to unwind trades under Michigan’s temporary restraining order, the CFTC used its emergency powers to require the exchange to honour completed contracts.
Selig defended his judgement by noting that such a move would inject uncertainty into derivative trading if states could order exchanges to invalidate completed transactions. Executed transactions are legally binding contracts that cannot be reversed simply because states object to the product being traded.
Selig went on to say that because the exchanges are federally regulated, there should be no discrimination against clients due to a state’s objection, as all parties should be treated equally regardless of where they live.
Multi state legal battle
Michigan is only one part of a growing nationwide conflict over sports prediction markets. Several state regulators have challenged Kalshi’s contracts, arguing they resemble traditional sports betting and require state gambling licences.
In response, the CFTC has filed lawsuits against Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin, with each case centring on whether event contracts should be treated as federally regulated derivatives or state controlled gambling products.
The CFTC has also filed amicus papers in many appeal courts, including the Sixth Circuit, Ninth Circuit, and Massachusetts Supreme Judicial Court. The fundamental thesis of the amicus briefs is that the Commodity Exchange Act gives the commission exclusive jurisdiction over certain contract markets, and that federal laws supersede incompatible state regulations. This indicates that the CFTC is working hard to establish precedents that can be used throughout the country.
As the number of jurisdictions studying prediction markets grows, determining how legal concerns will emerge becomes more challenging. Some have projected that similar questions may eventually reach the United States Supreme Court.
Kalshi in an impossible position
Kalshi has defended the legality of its sports event contracts, but the CFTC’s intervention exposed the difficult situation it faces. After Michigan secured a temporary restraining order, Kalshi sought permission from the CFTC to force liquidate certain positions held by Michigan customers.
The corporation claimed that complying with the court order was a legal requirement, as disregarding it may result in rising financial penalties of hundreds of thousands of dollars every day. However, striving to meet the state’s expectations put Kalshi in direct confrontation with its federal regulator, creating a situation that few enterprises face.
When the CFTC rejected the emergency plan, Kalshi was disappointed. Robert DeNault, its legal counsel, indicated that the business had already begun unwinding trades as mandated by the Michigan court. He referred to the scenario as an “impossible position”, in which obeying one authority meant disobeying another.
We are disappointed by this decision and believe it is unfair to Kalshi. We already acted and unwound the trades, as the Michigan court order required us to do.
— robertjdenault (@robertjdenault) July 14, 2026
We are being put in an impossible position, looking to follow state court orders that may contradict our federal… https://t.co/M81qNaOzCY
Future of prediction markets
The CFTC’s actions go beyond Michigan and Kalshi, as they are part of the larger issue of whether event contracts are financial instruments or gambling products. If the federal courts rule in favour of the CFTC, operators will have a better chance of providing contracts to consumers across the country using a single set of criteria, requiring less involvement from state regulators. However, if the states prevail, there will be different restrictions for the business, similar to sports betting.
The developing confrontation between the CFTC and state casino regulators may not be resolved in lower courts. With lawsuits pending in different jurisdictions and appeal courts already looking into relevant problems, contradictory outcomes are probable. When federal circuits differ, the United States Supreme Court frequently steps in to provide clarification. If that occurs here, the Court may establish a precedent outlining the boundaries of federal derivatives regulation and state gambling jurisdiction.
Stay in the loop and join the biggest iGaming Community in the world with SiGMA’s Top 10 news countdown. Subscribe HERE for weekly updates from the world’s iGaming authority and exclusive subscriber-only offers.
