Kalshi vs Michigan: CFTC Uses Emergency Powers in Sports Prediction Markets Showdown

⏱ 3 min read

The federal government and a Michigan state court are now giving Kalshi directly contradictory orders — and the clash has set the US sports prediction markets industry on a collision course with state gambling regulators. On July 14, 2026, the Commodity Futures Trading Commission (CFTC) used emergency authority to block Kalshi from complying with a Michigan court order that demanded the exchange cancel already-executed sports event contracts held by Michigan residents.

The dispute began on June 29, 2026, when Ingham County Circuit Court Judge Rosemarie Aquilina issued a temporary restraining order at the request of Michigan Attorney General Dana Nessel, who argues Kalshi's sports contracts constitute unlicensed gambling under state law. The court later clarified it wanted all Michigan-user trades "voided, cancelled and refunded" — and threatened fines of $500,000 per day starting August 13, 2026 if Kalshi fails to geofence the state by August 12. The CFTC's intervention has placed Kalshi squarely between two irreconcilable legal demands.

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The Federal–State Standoff

Michigan's case against Kalshi centres on a simple claim: sports event contracts — wagers on outcomes like game winners or player performance — are gambling under state law, and Kalshi holds no Michigan gambling licence. The state attorney general filed for a permanent injunction in March 2026 and secured the June restraining order as an interim measure.

The CFTC's counter-position is equally direct. As a Designated Contract Market (DCM) registered under the Commodity Exchange Act (CEA), Kalshi operates under federal jurisdiction, and the CEA requires a uniform national derivatives market. The agency argues state courts cannot override federal regulatory obligations placed on a federally-registered exchange.

• The CFTC has filed lawsuits against nine states — Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin — over similar enforcement actions against prediction market operators.
• A federal appeals court ruled 2–1 in April 2026 that Kalshi's sports event contracts qualify as "swaps" under the CEA, affirming a preliminary injunction that barred New Jersey from enforcing its gambling laws against the platform.
• CFTC Chairman Michael S. Selig has said the jurisdictional fight is "existential" and the agency will defend its authority all the way to the Supreme Court if necessary.

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What the CFTC Actually Ordered

On July 12, Kalshi pre-emptively filed an emergency rule with the CFTC proposing to force-liquidate open Michigan user positions and compensate losses from its own operational funds — a move designed to show good-faith compliance with the state court while minimising market disruption. The CFTC rejected that plan outright and instead exercised emergency powers to:

• Stay Kalshi's proposed emergency rule change.
• Order Kalshi to settle all outstanding Michigan contracts through its normal settlement process.
• Open a 90-day review period with a 30-day public comment window on the underlying jurisdictional questions.

CFTC Chairman Selig stated: "The commission will not allow states or state courts to bully registered entities into violating the Commodity Exchange Act and CFTC regulations. Canceling trades that have already been executed is an unprecedented step that risks a cascading effect on the entire marketplace."

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Kalshi's Impossible Position

Kalshi is now formally caught between two conflicting legal orders. Complying with the Michigan court risks CFTC enforcement action; complying with the CFTC risks $500,000-per-day fines from the Michigan court beginning August 13. The exchange's head of enforcement, Robert DeNault, described the situation plainly: "We are being put in an impossible position, looking to follow state court orders that may contradict our federal regulatory obligations."

Meanwhile, Kalshi's sports-related contracts have accounted for 80% of its total trading volume since July 2024, and combined monthly volume across Kalshi and Polymarket surpassed $24 billion in April 2026 — up from under $5 billion in September 2025. The commercial stakes of this legal battle extend well beyond Michigan.

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What This Means for Sportsbooks and Bettors

Traditional licensed sportsbooks — operating under state-by-state frameworks — are watching this dispute closely. If federal preemption is ultimately upheld, prediction market operators could offer sports contracts nationwide under a single CFTC licence, bypassing the licensing fees, tax obligations, and responsible gambling requirements that state-regulated books must satisfy. That structural asymmetry is already reshaping the competitive landscape: Bank of America has downgraded DraftKings and FanDuel citing stiff prediction market competition and declining margins.

For bettors in Michigan and the other nine states where the CFTC is actively litigating, the immediate effect is uncertainty. Michigan residents' open Kalshi positions will be settled normally for now — but the state's geofencing deadline of August 12, 2026 still stands, meaning new sports contracts will be blocked regardless of how the federal–state argument resolves in the short term. Legal experts say a Supreme Court ruling within one to two years is increasingly likely.

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Orders at a Glance

Issuing Authority	Order	Key Deadline	Penalty for Non-Compliance
Michigan Ingham County Circuit Court (Judge Aquilina)	Cancel executed Michigan-user trades; geofence state from sports event contracts	August 12, 2026 (geofencing)	$500,000 per day from August 13
CFTC (Chairman Michael S. Selig)	Honor all open Michigan trades through normal settlement; do NOT unwind executed contracts	90-day review period from July 14	CFTC enforcement under the Commodity Exchange Act
Federal Appeals Court (April 2026)	Preliminary injunction barring New Jersey from enforcing gambling laws against Kalshi	Ongoing (further appeal expected)	Federal contempt if NJ defies injunction

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Sources

Primary and secondary sources consulted for this article, in order of authority.

The commission will not allow states or state courts to bully registered entities into violating the Commodity Exchange Act and CFTC regulations.

— Michael S. Selig, Chairman, Commodity Futures Trading Commission · CFTC Emergency Order, July 14, 2026