A Michigan court has ordered Kalshi to maintain strict restrictions on sports event contracts within the state, with violations carrying $500,000 daily fines. Ingham County Circuit Court Judge Rosemarie E. Aquilina signed the order on September 1, 2026, extending restrictions that have applied since a temporary restraining order was issued in June 2026. Under the injunction, Kalshi cannot offer, list, execute or settle sports-related contracts for people located in Michigan, covering products functionally similar to internet sports betting including moneyline markets, parlays, over-under contracts, in-game betting and proposition bets. The company must use a third-party geolocation provider licensed by the Michigan Gaming Control Board and capable of meeting the regulator's geofencing requirements, with the court setting the substantial daily fine for noncompliance.
Kalshi made a critical settlement error on a $18.6 million Michigan football market, paying traders who backed the losing team before the game's dramatic finish. As reported by CNN, the exchange settled its Western Michigan versus Michigan market before the game ended, paying traders who backed the losing team. The market had traded $18.6 million by the time the result became final, with traders on both sides watching their balances move twice in minutes. Michigan trailed 12-7 with the clock reading zero after an incomplete Hail Mary attempt, with Western Michigan players already celebrating when officials reviewed the play and ruled that a Western Michigan defender touched the ball from out of bounds. One second was restored and quarterback Bryce Underwood threw a 47-yard touchdown to JJ Buchanan, giving Michigan a 13-12 victory. Kalshi had already treated the zeroed clock as the final state, paying the Western Michigan side, then reversing those payouts and reimbursing the wrongly marked losers before paying Michigan holders.
New Jersey Attorney General Jennifer Davenport has filed a writ of certiorari with the U.S. Supreme Court, requesting the court evaluate whether states can regulate sports event contracts through their own gambling laws. As reported by Sports Betting Dime, Davenport stated that "Companies like Kalshi claim to offer legal sports betting in all 50 States, but they refuse to follow the gambling laws of any State." The petition presents the question of whether the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act preempted states from regulating sports bets that occur within their jurisdictions if those bets are offered on markets registered with the Commodity Futures Trading Commission. Davenport argued that "Kalshi insists on a different approach—one where federalism has no place, and where the sports gambling laws must be the same in New Jersey as in Utah, so long as the company self-certifies its sports bets with the CFTC."
A federal court in New Jersey has granted Kalshi's motion for a preliminary injunction, preventing New Jersey authorities from enforcing state gambling laws against the company's sports-related event contracts. As reported by crypto.news, U.S. District Judge Katherine Kiel ruled that the injunction will remain in effect until the court determines whether New Jersey's Sports Wagering Act is preempted by federal law. The court found that Kalshi has demonstrated a reasonable likelihood of success in proving that federal law preempts state gambling regulations for its federally regulated event contracts. This ruling comes after Kalshi filed the lawsuit on March 28, 2025, following a cease-and-desist letter from New Jersey authorities demanding the company halt sports-related contract offerings.
On August 28, 2026, a three-judge Ninth Circuit panel ruled 3-0 against Kalshi's argument that sports event contracts qualify as swaps under the Commodity Exchange Act. The court found that sports contracts are not swaps, allowing Nevada to enforce its own gaming law against them. This creates a direct conflict with the Third Circuit's April ruling, where two of three judges sided with Kalshi in a New Jersey case. The conflicting rulings have created opposing rules for prediction markets in different states, with Kalshi having protection from New Jersey enforcement under the Third Circuit's reasoning while prediction market operators face state gambling controls within the Ninth Circuit. Legal experts note this circuit split is exactly the kind of record the Court's own rules treat as a strong candidate for review.
Polymarket odds on Supreme Court review of Kalshi's sports contracts have nearly doubled overnight to 51% after the Ninth Circuit ruling, up from 29% a week earlier. The market now prices a 51% chance the Supreme Court agrees to hear a case on sports event contracts by December 31, 2026, though a near-term grant still looks unlikely. New Jersey has until September 3, 2026 to file its own certiorari petition, with the case potentially adding a second vehicle for Supreme Court review. The market expects a certiorari grant to land on the Court's own calendar rather than an accelerated one, with traders more confident about eventual review than immediate action. The settlement error on the Michigan game adds another data point to critics' arguments against prediction market regulation.
The case has broader implications for prediction market regulation across the United States. Similar disputes have already spread to other jurisdictions, with Michigan joining more than a dozen states where regulators, attorneys general or other authorities have challenged prediction markets over sports contracts. By mid-August, the state enforcement fight had produced more than 20 lawsuits and cease-and-desist actions across the United States, with Arizona filing criminal charges and several other states ordering prediction market operators to stop offering sports-related products. The Second, Fourth, Sixth, Seventh, and Tenth Circuits are all hearing versions of the same dispute, with a ruling from any of these courts potentially adding a third data point to the legal split. The timing of Kalshi's settlement error, coming just five days after the Michigan court's restraining order, highlights the operational challenges facing prediction market operators in the current regulatory environment.
