EVENT CONTRACTS REGULATION SERIES

Polymarket Loses Michigan TRO: Why the Federal Preemption Argument Needs the CLARITY Act to Survive

De Silva Law Offices, LLC | March 11, 2026

On Tuesday, U.S. District Judge Paul L. Maloney denied Polymarket's motion for a temporary restraining order in its federal lawsuit against Michigan Attorney General Dana Nessel and the Michigan Gaming Control Board. The prediction market operator had sued in the Western District of Michigan after Nessel filed a civil enforcement action against Kalshi in state court, claiming its sports event contracts constitute unlicensed gambling. Polymarket, a federally designated contract market regulated by the Commodity Futures Trading Commission, argued that it faced imminent enforcement risk and sought emergency judicial protection before Nessel could act.

It did not get it. But the reason it did not get it is more instructive than the outcome itself.

Two Grounds, One More Important Than the Other

Judge Maloney denied the TRO on two grounds. The first is procedural and relatively unremarkable. A TRO without notice requires specific facts demonstrating that irreparable injury will occur before the opposing party can be heard. Maloney found that Polymarket had not cleared that bar because Nessel had taken no enforcement action specifically directed at Polymarket and no cease-and-desist or other formal threat was on the immediate horizon. The threat, in the court's words, remained "in the realm of the hypothetical." That holding is narrow and conditional. The preliminary injunction motion proceeds, and Nessel will now have an opportunity to be heard on the merits.

The second ground is not procedural. It goes to the substance of the federal preemption argument that prediction markets have been advancing in courtrooms across the country, and it warrants careful attention.

Polymarket argued that its event contracts are "swaps" within the meaning of the Commodity Exchange Act, placing them within the CFTC's exclusive jurisdiction and therefore beyond the reach of state gambling laws. Judge Maloney found that argument unpersuasive and said so plainly. He noted that Polymarket had offered no coherent basis for reading the statutory definition of "swap" to encompass sports event contracts, and he addressed the term "event" directly. The court observed that the word has common usages broad enough to mean "essentially anything that happens," and concluded that extending it to cover game scores and sporting outcomes would stretch the term to cover virtually all real-world occurrences. That, the court said, is not a principled statutory interpretation.

The Preemption Argument Has a Structural Problem

This is not a new problem, but it is becoming harder to avoid naming. Prediction markets have staked their regulatory position on federal preemption under the CEA, and they have done so by asserting that their products fit within a statutory framework that was not written with sports contracts in mind. The CFTC has been a willing ally in this effort. Chair Brian Selig has publicly affirmed the agency's exclusive authority over event contracts, filed an amicus brief in a Ninth Circuit case to make that position explicit, and signaled that a Notice of Proposed Rulemaking on prediction markets is forthcoming. The agency's posture is clear. The statute's posture is less so.

Judge Maloney's analysis exposes the gap between where the CFTC wants the law to be and where the text of the CEA currently sits. Exclusive jurisdiction under the CEA attaches to swaps and futures contracts traded on designated contract markets. Whether event contracts tied to sports outcomes are swaps is not a question the statute resolves. Congress amended the CEA through the Dodd-Frank Act to bring swaps within the federal framework, but it did not contemplate a world in which consumers would trade binary contracts on whether the Detroit Pistons would cover a spread. That world exists now. The statute has not caught up.

As analyzed in our earlier piece Event Contracts, Sports Betting, or Swaps? The Federal-State Regulatory Boundary, state attorneys general have not been wrong to point this out. When Nessel filed her lawsuit against Kalshi, she argued that its products are unlicensed gambling under Michigan law, full stop. When the Massachusetts Gaming Commission secured a preliminary injunction against Kalshi in January, the court found that the CFTC's asserted jurisdiction was "overly broad" and that Congress had not intended to strip states of their traditional authority to regulate gambling. These courts are not ignoring the CFTC. They are reading the statute and finding the preemption claim unproven.

The Multi-State Picture and What It Signals

Polymarket is now litigating simultaneously in Michigan, Massachusetts, and Nevada. In Nevada, the posture is reversed: a state court granted the Nevada Gaming Control Board's TRO request and ordered Polymarket to stop offering sports contracts in the state while the enforcement action proceeds. Kalshi faces similar battles across multiple jurisdictions. Crypto.com exited Nevada's market entirely in October after losing its bid for a preliminary injunction.

The pattern is not coincidental. Each of these states has concluded, independently, that the federal preemption argument is contestable enough to justify judicial intervention. The CFTC cannot resolve that contest through press statements or amicus briefs. Agency interpretations of agency authority are not binding on Article III courts, and they carry diminishing persuasive weight when the underlying statutory text does not clearly support them.

What this map reveals is that the prediction market industry is engaged in a state-by-state war of attrition that it did not anticipate when it accepted the designated contract market framework as its regulatory home. DCM status confers real benefits, including access to cleared markets and a credible federal regulatory relationship. But it does not, on its own, resolve the preemption question in a way that binds state courts. That resolution requires Congress.

The NFA's Warning and the Retail Dimension

The jurisdictional fight is not the only structural problem emerging from the current regulatory arrangement. As we detailed in our analysis of NFA Calls for New Regulatory Framework for Retail Derivatives Clearing: What It Means for Event Contract Markets, the NFA's comment letter to the CFTC on retail direct clearing raised a concern that cuts directly to the heart of how prediction market platforms are currently structured. The NFA observed that direct-clearing DCOs, which is the model Kalshi and Polymarket operate under, do not provide retail participants with the same customer protection framework that applies when retail customers access derivatives markets through an intermediary FCM.

The NFA was not suggesting that prediction market platforms are unsafe. It was making a structural point: the regulatory architecture built around DCMs and DCOs was designed with institutional and commercial participants in mind. Retail participants were expected to interact with that system through intermediaries who carry their own regulatory obligations. The direct-clearing model effectively removes that layer, and the CEA's customer protection provisions do not fully fill the gap. Congress did not design those provisions with retail sports-contract trading in mind.

Judge Maloney's ruling and the NFA's warning are related observations about the same underlying problem. The CEA was built for a derivatives world that looked different from the one prediction markets have created. The statute's gaps are not failures of draftsmanship so much as artifacts of timing. Congress wrote the CEA to address the markets that existed. It did not write it to address Polymarket.

Why This Is the CLARITY Act's Argument to Make

The CLARITY Act, introduced in the current Congress, would address this problem at the statutory level. It would amend the CEA to define event contracts explicitly and to clarify the scope of the CFTC's exclusive jurisdiction over them. If enacted, it would give federal courts a textual hook that they currently lack. Judge Maloney would not have needed to reason from the word "event" in the abstract if Congress had told him what an event contract is and what regulatory regime governs it.

That is the lesson of the Michigan TRO denial that most coverage has missed. This is not simply a story about a procedural loss or a miscalibrated litigation strategy. It is a story about what happens when an industry tries to build a federal preemption defense on a statutory foundation that was not designed to hold the weight placed on it. The foundation is not fraudulent. The CFTC's authority over derivatives markets is broad and well-established. But broad authority over derivatives in general is different from clear, express preemption of state gambling laws as applied to sports outcome contracts in particular. That distinction is what courts are drawing, repeatedly, and it is what the CLARITY Act is designed to close.

Until Congress acts, each new state enforcement action will produce another round of TRO filings, preliminary injunction briefings, and inconsistent rulings. Some courts will find preemption persuasive; others will not. The industry will continue to operate in a patchwork of state-by-state uncertainty. That is a costly and inefficient way to resolve a genuinely important question about the structure of American financial markets and the scope of federal regulatory authority.

What Comes Next in Michigan

The preliminary injunction phase in Michigan will be more substantive. Nessel will now be heard, and the court will examine the preemption argument on a fuller record. The outcome of that proceeding will matter more than the TRO denial, both for Polymarket's operations in Michigan and as a signal to other courts working through the same analysis.

The stronger argument for prediction markets at the preliminary injunction stage is not definitional. It is structural. Congress created the DCM designation as a rigorous regulatory category. The CFTC reviews contract applications, monitors trading activity, and can restrict or ban contracts that are contrary to the public interest. State gambling regulators have no role in that process and no visibility into it. The argument that state enforcement disrupts an integrated federal regulatory scheme is more concrete and more compelling than the argument that a sports outcome is a swap within the meaning of Dodd-Frank.

Whether Judge Maloney finds that argument sufficient to warrant preliminary injunctive relief remains to be seen. The TRO denial does not foreclose it. But the ruling is a reminder that federal preemption, even when conceptually sound, must be anchored in statutory text. Winning the policy argument is not the same as winning the legal one. Until the CLARITY Act or its successor gives courts the text they need, that distinction will continue to matter.

De Silva Law Offices, LLC advises clients on CFTC-regulated markets, designated contract market compliance, and derivatives regulatory matters. This article is part of an ongoing series on event contracts regulation. Nothing in this article constitutes legal advice or creates an attorney-client relationship.