Decentralized prediction market platform Polymarket has escalated its regulatory fight by filing a federal lawsuit against the state of Massachusetts. The lawsuit directly challenges the state's authority to regulate event-based prediction contracts as unlicensed gambling, arguing that oversight belongs exclusively to federal regulators, specifically the Commodity Futures Trading Commission (CFTC).
The legal action follows a recent Massachusetts court ruling against rival platform Kalshi. Last month, a state judge agreed with Massachusetts Attorney General Andrea Joy Campbell that Kalshi's sports-event contracts amounted to unlicensed sports wagering, prohibiting the platform from allowing Massachusetts residents to trade them without obtaining a state gaming license. The court later denied Kalshi's request to pause the order during its appeal, giving the company 30 days to comply.
Polymarket's Chief Legal Officer, Neal Kumar, stated in a post on X that "These are national markets with critical questions that must be resolved in federal court." He argued that state efforts to shut down prediction markets "doesn't change federal law," emphasizing the platform's position that Massachusetts lacks the authority to regulate these financial instruments.
The lawsuit highlights a widening conflict between state and federal regulatory approaches. Several U.S. states, including Nevada, have moved against prediction market platforms offering contracts tied to sporting outcomes, contending they fall within existing gambling frameworks requiring local licensing. State regulators argue that allowing such contracts without gaming licenses creates uneven enforcement and weakens consumer protections.
However, courts have reached different conclusions on the matter. In January, a federal judge temporarily blocked Tennessee from enforcing a cease-and-desist order against Kalshi's sports contracts, agreeing to first consider whether federal commodities law preempts state gambling rules. This inconsistency has created a patchwork of rulings across jurisdictions.
The core legal question centers on whether prediction contracts qualify as derivatives overseen by the CFTC or whether states retain authority to restrict them under gambling law. Prediction market operators argue their contracts are standardized, cash-settled instruments designed for price discovery and risk transfer, placing them within the federal commodities framework. States counter that sports-linked contracts mirror traditional betting markets.
The outcome of this lawsuit, along with appeals in cases involving Kalshi, is likely to shape the next phase of the prediction market industry's development in the U.S. A ruling favoring federal authority could limit states' ability to restrict sports-linked contracts, paving the way for broader national access. Conversely, if courts uphold state enforcement, prediction markets may be forced to withdraw products in certain jurisdictions or seek gaming licenses that fundamentally alter their operating model.
