Polymarket Challenges Massachusetts Laws in Federal Court Over Prediction Markets
Polymarket has taken legal action against the state of Massachusetts, challenging its authority to restrict its prediction markets.
This move comes shortly after regulators compelled Kalshi to geographically geofence its sports-related contracts within the state. Polymarket contends that federal regulations, specifically those enforced by the Commodity Futures Trading Commission (CFTC), take precedence over state-level gambling laws. The company filed a lawsuit in the U.S. District Court for the District of Massachusetts, asserting that the state lacks the jurisdiction to prohibit its prediction markets. Polymarket emphasizes that federal law supersedes state statutes, citing the Commodity Exchange Act (CEA) as giving the CFTC exclusive authority over these contracts.
In its complaint, Polymarket describes sports prediction markets as federally regulated “swaps.” The company argues that, although these contracts resemble gambling, Congress explicitly delegated regulatory authority to the CFTC. Since the CFTC has not banned such contracts, Polymarket claims their operation should be lawful across all states. Furthermore, the firm contends that federal legislation has “occupied the field” of swaps and futures regulation, leaving little room for state intervention.
The lawsuit warns that allowing Massachusetts to impose its laws could set a dangerous precedent, enabling all states to craft their own rules for federally approved exchanges—thus undermining the goal of creating a unified national market. Polymarket is seeking a court declaration that Massachusetts’ gambling laws are preempted by federal legislation and an injunction to prevent the state from enforcing those laws against its platform.
Neal Kumar, Polymarket’s Chief Legal Officer, expressed in a post on X (formerly Twitter) that the company is seeking clarity from federal courts. He stated, “Congress gave the CFTC, not states, exclusive authority over event contracts.” Kumar emphasized the importance of resolving these issues at the federal level, noting that “these are national markets with critical questions that must be resolved in federal court.” He also pointed out that attempts by states to shut down exchanges represent a missed opportunity to innovate and build future markets.
Polymarket’s legal challenge follows closely behind Kalshi’s recent setback. On February 6, a Massachusetts Superior Court upheld an order requiring Kalshi to geofence its platform within the state, effectively blocking Massachusetts residents from accessing its sports contracts. This ruling was based on a prior preliminary injunction issued on January 20, which found Kalshi’s offerings to resemble unlicensed sports betting, thus subject to state regulation. Judge Christopher Barry-Smith characterized Kalshi’s contracts as being more akin to gambling than financial instruments. He rejected the company’s argument that federal oversight through the CFTC grants it exclusive regulatory authority, affirming that states retain their right to regulate gambling activities.
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The court also determined that Kalshi’s business model conflicted with Massachusetts’ sports betting laws. The judge noted that this conflict outweighed the financial impact on Kalshi, emphasizing that the company knowingly built a platform that conflicted with existing regulations. Kalshi’s appeal was unsuccessful, with the court highlighting that the platform lacked the necessary gaming licenses and failed to follow consumer protection standards, including minimum age requirements. As a result, Massachusetts residents are now prohibited from initiating new sports-related contracts, although existing contracts may still be settled.
This ongoing legal dispute underscores the broader tension between state regulators and prediction market operators. As courts continue to debate whether these contracts should be classified as financial products or gambling, the outcome could have significant implications for the future of prediction markets. The case may determine whether these markets will be governed by a cohesive federal framework or be subject to a patchwork of state laws across the United States. Polymarket Massachusetts Prediction Markets
