Polymarket Takes Ohio to Federal Court, Citing New CFTC Rules After Kalshi’s Appeals Loss

Introduction

Polymarket US filed a federal lawsuit against Ohio on October 16, the very day the state’s deadline to halt sports‑event contracts expired. The exchange contends that recent rulemaking by the Commodity Futures Trading Commission (CFTC) and the Constitution’s Commerce Clause render Ohio’s licensing regime unconstitutional and preempted. The case arrives on the heels of a recent appellate loss for rival platform Kalshi, highlighting a growing legal battle over whether state gambling laws can apply to crypto‑based prediction markets.

Two Legal Theories Behind the Complaint

1. Interstate Commerce Violation

Polymarket argues that Ohio’s licensing framework discriminates against out‑of‑state operators by favoring entities with a physical presence in the state. The complaint claims this creates a “balkanizing” effect that runs afoul of the Commerce Clause, which guarantees free trade among the states. By limiting who can offer sports‑event contracts, Ohio is, according to Polymarket, erecting a barrier to interstate commerce.

2. Federal Preemption via the Commodity Exchange Act

The second pillar of Polymarket’s argument rests on the Commodity Exchange Act, which grants the CFTC exclusive authority over swap contracts and, by extension, event contracts traded on federally regulated exchanges. Polymarket points to two CFTC actions issued on October 9: an interim final rule that removes casino‑style gambling from the swap definition, and a proposed rule that explicitly includes event contracts within the CFTC’s jurisdiction. The exchange asserts that the Sixth Circuit’s September ruling against Kalshi was decided under a different regulatory landscape and should no longer control the outcome.

Context: The Kalshi Ruling and a Split Among Circuits

The September 25 decision by the Sixth Circuit rejected Kalshi’s claim of federal preemption, siding with Ohio’s position. However, the Third Circuit recently upheld a similar preemption argument for Kalshi in New Jersey, and New Jersey has petitioned the Supreme Court to resolve the split. Polymarket’s lawsuit therefore not only challenges Ohio’s specific regulations but also seeks to clarify the broader national framework governing prediction‑market platforms.

What Polymarket Is Seeking

The complaint asks the court to:

• Declare Ohio’s gambling statutes unconstitutional as applied to Polymarket.
• Preempt those statutes under the Commodity Exchange Act.
• Issue both preliminary and permanent injunctions to stop the state from enforcing its licensing requirements.

As of the filing date, Polymarket had not yet moved for a preliminary injunction, and Ohio had not responded. The case is now before Judge Douglas Cole in the Southern District of Ohio.

Practical Implications

If the court rules in Polymarket’s favor, it could set a precedent that limits state regulators’ ability to impose licensing conditions on crypto‑based prediction markets, effectively nationalizing the regulatory regime under the CFTC. Conversely, a ruling for Ohio would reinforce state authority and could prompt further litigation from other platforms seeking to operate across state lines.

Closing Thoughts

Polymarket’s lawsuit underscores the tension between emerging decentralized finance products and traditional state gambling frameworks. The outcome will likely influence how regulators, courts, and market participants navigate the intersection of federal commodity law and state‑level gambling oversight. Stakeholders should monitor the proceedings closely, as the decision could reshape the legal landscape for prediction‑market exchanges across the United States.