CFTC Orders Kalshi to Ignore Michigan Court's Sports Contract Ban

The legal battle over prediction markets took another dramatic turn after the Commodity Futures Trading Commission (CFTC) instructed Kalshi to continue honoring its sports event contracts in Michigan despite an active state court order requiring the company to stop offering them.

The unprecedented move places Kalshi between conflicting federal and state directives. While a Michigan court ordered the prediction market platform to block sports event contracts in the state and begin geofencing users by Aug. 12, the CFTC has now directed the company not to unwind existing contracts, arguing that doing so would violate federal commodities law.

CFTC Rejects Kalshi's Plan to Comply

Earlier this month, a Michigan court extended a temporary restraining order prohibiting Kalshi from offering sports event contracts to residents in the state. The ruling also required the company to void certain existing trades and implement geofencing technology by Aug. 12 or face $500,000 in daily fines.

Kalshi initially appeared ready to comply. On July 12, the company submitted an emergency rule request asking the CFTC for permission to liquidate open positions held by affected Michigan users.

Instead, the federal regulator rejected the request.

Invoking its emergency authority, the CFTC ordered Kalshi to honor the contracts that had already been executed, arguing that states cannot compel federally regulated exchanges to violate their obligations under the Commodity Exchange Act.

CFTC Chairman Michael Selig said canceling completed trades would create uncertainty across derivatives markets and undermine confidence in federally regulated contracts.

Federal and State Regulators Continue to Clash

The Michigan dispute has become one of the clearest examples yet of the growing jurisdictional battle surrounding prediction markets.

State regulators argue that Kalshi's sports event contracts function as unlicensed sports betting and therefore fall under state gaming laws. The CFTC maintains that Kalshi operates as a federally regulated designated contract market, placing its products under federal oversight instead.

According to the commission, Michigan is the first state to directly interfere with completed derivatives transactions, prompting what it described as an extraordinary response to protect the integrity of federally regulated markets.

The CFTC has already challenged similar enforcement actions across multiple states, including Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York, Rhode Island, and Wisconsin, while also filing amicus briefs in several appellate courts defending its authority over prediction markets.

Kalshi Says It Has Been Left in an "Impossible Position"

Despite receiving federal backing, Kalshi said the conflicting directives have created an untenable situation.

The company's Head of Enforcement and legal counsel, Robert DeNault, said Kalshi had already begun complying with the Michigan court order before the CFTC intervened.

"We are disappointed by this decision and believe it is unfair to Kalshi," DeNault wrote on social media. "We already acted and unwound the trades, as the Michigan court order required us to do."

He added that the company now finds itself caught between conflicting legal obligations, attempting to comply with a state court while also meeting its responsibilities as a federally regulated exchange.

With Michigan still requiring Kalshi to geofence users by Aug. 12 and the CFTC directing the company to continue honoring its contracts, the dispute has become one of the most significant legal tests yet over who ultimately has authority to regulate prediction markets in the United States.