A federal judge in Michigan has refused to block the state from applying its sports-betting laws to sports event contracts that Coinbase Financial Markets plans to make available through Kalshi, dealing an early setback to the argument that federal commodities rules override state gambling restrictions.
U.S. District Judge Shalina Kumar of the Eastern District of Michigan denied Coinbase’s request for a preliminary injunction on Thursday. The company had sought an order preventing Michigan officials from enforcing laws connected to sports event contracts while its lawsuit proceeds.
Kumar found that Coinbase had not shown it was likely to prevail on its central claim: that the Commodity Exchange Act, or CEA, prevents Michigan from regulating the contracts under the state’s Lawful Sports Betting Act.
The ruling leaves Michigan free to enforce its sports-wagering framework against the planned offering while the broader case continues. It also adds to a growing body of litigation testing whether federally regulated event-contract platforms can offer products tied to sports outcomes without obtaining state gambling approvals.
Court rejects preemption argument
Coinbase filed its Michigan lawsuit in December 2025 as part of a series of challenges involving state-level restrictions on prediction markets. The dispute concerns contracts that allow users to take positions on the outcome of real-world events, including sporting events, through Kalshi’s platform.
Coinbase argued that Michigan’s gambling laws are “conflict preempted” by federal law. Under that theory, state enforcement would interfere with Congress’s intention to establish a nationally uniform system for commodity markets overseen by the Commodity Futures Trading Commission.
The company also argued that it would be impossible to comply with both the federal CEA and Michigan’s Lawful Sports Betting Act. Michigan’s statute governs legal sports betting in the state and places it within a licensing and regulatory structure administered at the state level.
Kumar rejected both arguments at the preliminary stage.
In her ruling, the judge wrote that Coinbase had not demonstrated that the sports event contracts at issue qualify as swaps under the CEA. That conclusion undercut the company’s effort to argue that the contracts sit exclusively within a federal regulatory category.
The court also found that the burden of complying with Michigan’s requirements did not establish a legal impossibility. Kumar wrote that compliance with the Lawful Sports Betting Act may be difficult or expensive, but those conditions alone do not mean federal and state rules cannot operate alongside each other.
A preliminary injunction is an extraordinary remedy that requires a party to meet several standards, including showing a likelihood of success on the merits. Kumar concluded Coinbase had not satisfied those requirements.
A disputed line between event trading and sports betting
The Michigan case turns on a question with implications beyond one platform: when does a contract based on a sports result become a commodity-market product, and when does it amount to sports wagering under state law?
Prediction-market operators have generally described event contracts as financial products that provide a way to trade views about future outcomes. State regulators have frequently taken a different approach when the underlying event is a game, tournament, or athletic contest, arguing that the economic substance resembles sports betting.
Kumar’s ruling does not resolve that question for the entire industry. It does, though, give Michigan room to press its own interpretation while the litigation moves forward. The decision also suggests that a federal regulatory connection, by itself, may not be enough to stop state gambling authorities from acting.
That creates a more complex operating environment for platforms seeking to offer sports-related event contracts nationwide. A product may face different treatment depending on the state, even if the operator considers it part of a federally supervised market.
State challenges are spreading
Coinbase’s Michigan action was one of three state lawsuits it filed in December 2025, alongside challenges involving Illinois and Connecticut. The cases reflect mounting tension between prediction-market firms and state agencies responsible for gambling enforcement.
The Commodity Futures Trading Commission has also pursued litigation involving state authorities as it seeks to defend federal oversight of event-contract markets. According to the supplied materials, Kentucky became the ninth state sued by the CFTC in June, following complaints involving Wisconsin, Illinois, Arizona, Connecticut, New York, New Mexico, Minnesota, and Rhode Island.
In June, the CFTC proposed new rules addressing prediction markets while maintaining support for sports betting more generally. State regulators opposed the proposal, underscoring how unsettled the jurisdictional boundaries remain.
The Michigan order arrives as trading activity in event contracts has expanded sharply. The Pew Research Center data cited in the supplied material put monthly trading volume on the two largest forecasting exchanges at less than $5 billion in September 2025 and roughly $24 billion by April 2026.
Higher volumes have increased the commercial stakes in the legal fight. They have also made sports-related contracts a more urgent concern for state officials, who argue that products tied to athletic outcomes should be subject to the consumer-protection, licensing, tax, and integrity rules applied to conventional sportsbooks.
Michigan keeps enforcement leverage
For Coinbase, the immediate consequence is procedural but practical: Michigan can continue enforcing applicable state laws unless a later ruling changes that position. The company may continue to pursue its underlying claims, but it did not secure the early court protection it sought.
For other event-contract platforms, the decision places added weight on state-specific legal assessments. Firms offering contracts connected to elections, economic indicators, or other public events may face different legal arguments from those offering contracts tied directly to sports results.
The ruling does not establish a nationwide ban on sports event contracts, nor does it decide the merits of every federal preemption claim. It does show that courts may demand a clearer statutory basis before preventing states from applying their gambling laws to products that resemble sports wagering.
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