Polymarket filed a federal lawsuit against Massachusetts on Monday, escalating a nationwide jurisdictional clash between prediction market operators and state gaming regulators.
The company argues federal commodities law preempts state gambling regulations, three days after a Massachusetts judge denied rival Kalshi's request to pause a geofencing order.
Courts across multiple states have delivered contradictory rulings on whether sports-related prediction contracts constitute federally regulated derivatives or unlicensed gambling.
The legal battles intensified as the CFTC withdrew a Biden-era proposal that would have banned political event contracts.
Massachusetts Court Backs State Authority
Judge Christopher Barry-Smith ruled Jan. 20 that Kalshi must obtain a state gaming license to offer sports contracts in Massachusetts, finding the products mirror sports betting experiences.
The court Feb. 6 denied Kalshi's stay request, ordering the platform to geoblock Massachusetts users within 30 days while appeals proceed.
Barry-Smith rejected Kalshi's federal preemption defense as "overly broad," finding Congressional intent did not strip states of traditional gambling oversight authority. Massachusetts Attorney General Andrea Joy Campbell argued CFTC regulation does not provide a blanket shield from state laws.
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Federal Court Blocks Tennessee Enforcement
A Tennessee federal judge issued contrasting guidance Jan. 12, temporarily blocking state regulators from enforcing cease-and-desist orders against Kalshi. Judge Aleta Trauger found the platform "likely to succeed" on claims that federal commodities law preempts state gambling statutes.
Tennessee had ordered Kalshi, Polymarket and Crypto.com to cease sports contracts by Jan. 31 or face up to $25,000 per violation.
Nevada regulators similarly moved against the platforms, while Coinbase faces state litigation after launching prediction markets.
CFTC Policy Shift Adds Momentum
The federal regulator Feb. 4 withdrew its 2024 proposed rule banning political event contracts and rescinded September 2025 staff guidance warning firms about sports contract litigation risks.
CFTC Chairman Michael Selig called the Biden-era proposal a "frolic into merit regulation" and pledged new rules promoting "responsible innovation."
The policy reversal came as 10 states issued cease-and-desist orders against prediction market platforms, creating what operators call a "patchwork" of state regulations threatening national market liquidity.
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