Coinbase loses Michigan bid over sports prediction markets

Coinbase Financial Markets lost its bid for preliminary relief in Michigan on Aug. 6 after U.S. District Judge Shalina Kumar refused to block state officials from enforcing sports betting laws against the company’s event contracts. 

The order leaves Coinbase without the injunction it sought as its challenge continues.

Coinbase sued Michigan Attorney General Dana Nessel, arguing that event contracts offered through federally regulated prediction markets fall under the Commodity Exchange Act and the Commodity Futures Trading Commission’s exclusive jurisdiction. Coinbase wants Michigan customers to access contracts supplied through Kalshi.

Judge rejects Coinbase’s preemption case

Kumar concluded that Coinbase had not shown a likelihood of success on its federal preemption claims, a requirement for preliminary relief. The judge rejected Coinbase’s argument that sports event contracts necessarily qualify as swaps under the Commodity Exchange Act and therefore sit beyond Michigan’s gambling authority.

The court also rejected Coinbase’s claim that compliance with federal derivatives law and Michigan’s Lawful Sports Betting Act would be impossible. Kumar wrote that Coinbase’s assertions were “applesauce,” adding that higher costs or operational difficulty do not establish legal impossibility. The ruling addresses preliminary relief rather than a final judgment.

Coinbase has argued that state restrictions frustrate Congress’s attempt to build a federal derivatives regime. Chief Legal Officer Paul Grewal previously said state efforts to control prediction markets “stifle innovation and violate the law.” That remains Coinbase’s position, not a conclusion accepted by the Michigan court.

Federal courts remain divided over sports contracts

The Michigan ruling lands in a legal split. In April, the Third Circuit affirmed preliminary relief for Kalshi in New Jersey, holding that Kalshi had shown a reasonable chance of succeeding on its argument that sports event contracts are swaps and federal derivatives law preempts conflicting state restrictions.

Other courts have reached the opposite conclusion. Michigan federal judges have questioned whether Congress intended the Commodity Exchange Act to sweep sports wagering into the federal swaps framework. Earlier decisions in Ohio and elsewhere have rejected or limited the industry’s preemption theory, leaving the legal status unsettled.

As previously reported in New Jersey coverage, former SEC and CFTC Chair Gary Gensler argued that sports prediction contracts should remain outside the federal swap framework. In related coverage, gaming groups have urged Congress to preserve state authority over sports wagering rather than let federally registered platforms bypass state licensing systems.

CFTC is pressing its own federal authority

The CFTC has taken the opposite institutional position. Chairman Michael Selig has repeatedly said the agency has exclusive jurisdiction over federally regulated prediction markets. The commission sued Kentucky in June after the state pursued enforcement against designated contract markets and has initiated proceedings involving Minnesota, Illinois and Rhode Island.

The agency is also rewriting its event contract framework. A June proposal would create a structured process for determining whether contracts involve gaming, terrorism, assassination, war or conduct unlawful under federal or state law, and whether they are contrary to the public interest. The proposal includes a 90-day review period.

As crypto.news reported in prediction market coverage, the CFTC’s push has expanded beyond individual disputes into rulemaking. Another proposal addresses reporting requirements for certain collateralized event contracts, showing federal regulators are building a structure while courts continue debating state power.

What happens next in Coinbase’s Michigan case

The denial means Coinbase does not receive the preliminary shield it requested against Michigan enforcement. It does not resolve every issue in the underlying lawsuit. Coinbase can continue litigating its claims and may seek appellate review of the injunction decision, while Michigan officials can continue defending their authority under state gaming law.

The case also increases pressure on higher courts to reconcile conflicting interpretations. The Third Circuit has sided with Kalshi on the core swap and preemption questions, while several district courts have disagreed. Coinbase argues a conflicting appellate ruling elsewhere would deepen the split and increase the likelihood of potential Supreme Court review.

For Coinbase, the stakes extend beyond Michigan. Its prediction market service is offered through Coinbase Financial Markets, and the company has been expanding event contracts alongside stocks, crypto and derivatives. Coinbase argues state restrictions could force different availability rules across the country if federal preemption remains unsettled.

The next major developments will be any appeal, merits rulings in Michigan and appellate decisions in other prediction market cases. The CFTC’s rulemaking may shape the debate, but an agency rule cannot erase statutory questions courts are already interpreting. For now, Kumar’s ruling gives Michigan a procedural win while leaving the national jurisdiction fight unresolved.