By Maria L. Price & Michael S. Carroll
On March 3rd, 2026, Michigan Attorney General Dana Nessel, on behalf of the People of the State of Michigan and the Michigan Gaming Control Board (MGCB), filed a civil enforcement action against KalshiEx, LLC (Kalshi) in the 30th Judicial Circuit Court in Ingham County, Michigan. The complaint seeks a permanent injunction and order of abatement against the New York-based prediction market company, alleging that it is operating an unlicensed internet sports betting platform in violation of Michigan’s Lawful Sport Betting Act (LSBA), the Michigan Gaming Act, and the Michigan Penal Code (Nessel v. KalshiEx, 2026). The case raises a fundamental question that is becoming increasingly more prominent for state regulators across the country: at what point does a “prediction market” become illegal gambling?
Background
Kalshi was co-founded in 2018 and formally launched in July 2021, initially offering event contracts on macroeconomic topics such as inflation and unemployment. Users purchase “Yes” or “No” positions on whether a particular event will occur, with a fixed payout of $1 per contract if correct and $0 if incorrect. Prices fluctuate between $0.01 and $0.99 based on aggregate user sentiment, mimicking a trading market. Kalshi describes this model as a “dynamic pricing” system reflecting “the collective sentiment of its users regarding the likelihood of an event” (Nessel v. KalshiEx, 2026). In 2024, the company expanded into political event contracts before additionally moving into sports-related event contracts.
Michigan enacted the LSBA in December 2019 after recognizing that unlicensed internet sports betting was already occurring illegally in the state. Under the LSBA, internet sports betting may only be conducted by a licensed operator, and only commercial casinos licensed under the Michigan Gaming Control and Revenue act or federal authorized tribal casinos may apply for such license (Mich. Comp. Laws § 432.406, 2019). Kalshi, as a Delaware limited liability company, is ineligible to apply for a sports betting operator license under the LSBA. The MGCB announced an investigation into prediction market operators in April 2025 and subsequently warned licensed gaming entities in Michigan that operating prediction markets could jeopardize their access in the state (Sisk, 2026).
Michigan’s Claims
The complaint contains two primary counts against Kalshi. Count 1 alleges a direct violation of the LSBA and Count 2 asserts that Kalshi’s operation constitutes a public nuisance under common law.
Count 1: LSBA Violation
The State Argues that Kalshi’s sports event contracts meet the statutory definition of “sports betting” under Michigan Law, which expressly includes single-game bets, over-under wagers, proposition bets, parlays, and exchange betting, among others. The complaint points to specific contract types Kalshi introduced in 2025 bearing these characteristics. One contract, internally titled “FOOTBALLSPREAD,” invited users to wager on whether a team would win by a specified number of points. This is a point spread bet. Another asked whether a team or player would accumulate points in a given quarter, or an over/under bet. A third asked whether a player would score a specified number of touchdowns in a game, which is a proposition (prop) bet. As stated, each of these contract types is explicitly defined in LSBA as sports betting.
Kalshi holds neither a sports betting operator license nor a sports betting platform provider license from the MGCB, and because it is ineligible to obtain either, the State contends that every wager placed by a Michigan resident on Kalshi’s platform constitutes unlicensed internet sports betting in violation of MCL 432.413(1)(a). The complaint also alleges violations of the Michigan Gaming Control and Revenue Act (MCL 432.218(1)(a)) and sections 301 and 305 of the Michigan Penal Code, which prohibit accepting money contingent on uncertain outcomes and distributing information concerning the making of wagers.
Count 2: Common Law Nuisance
Under Michigan common law, conduct that violates a valid state statute enacted to protect public health, safety, and welfare constitutes a public nuisance, and harm to the public is presumed to flow from such violations (Attorney General v. Peterson, 1969). The state argues that because Kalshi’s operations violate multiple provisions of the LSBA, the Gaming Act, and the Penal code, its platform constitutes a per se public nuisance. The complaint emphasis the public health dimensions of this argument at some lengthen, citing the American Psychiatric Associations’ classification of gambling disorder as a behavioral addiction in the DSM-5-TR and referencing studies showing that online sports bettors experience problem gambling rates at least twice as high as gamblers generally. The complaint notes that Kalshi operates without the responsible gambling safeguards mandated for licensed operators in Michigan.
Kalshi’s Platform and the “Gambling by Design” Argument
A notable feature of the complaint is its analysis of Kalshi’s interface design. The State alleges that the platform employs behavioral design mechanisms drawn from gambling psychology, including the use of bright green font to highlight potential payouts while displaying costs in standard black text, a continuously updating ticker tape of marketing activity, and social features that enable users to post predictions and compete on public leaderboards. The complaint contends that these features are designed to increase user engagement and transaction volume by exploiting reward anticipation and compulsive engagement loops associated with slot machine dynamics and operant conditioning. The state argues that this design is evidence that reinforces the characterization of Kalshi’s product as gambling rather than a financial trading investment.
The integrity risks of an unregulated platform extend beyond the platform itself. As illustrated by BetMGM’s viral fabricated post claiming NBA legend Phil Jackson would be hired as the University of North Carolina’s next basketball coach, which accumulated over 1.3 million impressions before being deleted (Hauser, 2026), unverified information can instantaneously move millions of dollars in prediction market contracts, reinforcing Michigan’s argument that operating outside the state’s licensing framework leaves consumers without the integrity protections that licensed operators are legally required to maintain. Kalshi’s own market integrity rules expressly prohibit trading on the basis of non-public information, market manipulation, and the dissemination of false information to influence contract prices.
Federal Preemption
Michigan’s lawsuit arrives amid a rapidly expanding national legal conflict over whether federal commodities law preempts state gaming regulation of prediction markets. Kalshi is a designated contract market regulated by the Commodity Futures Trading Commission (CFTC) under the Commodity Exchange Act (CEA). The company’s central legal position is that the CEA grants the CFTC exclusive jurisdiction over event contracts traded on a registered exchange, thereby preempting any conflicting state gambling laws.
The state-level results have been decidedly mixed. Nevada’s litigation proceeded on parallel federal and state tracks, culminating on April 3, 2026, when state court Judge Jason Woodbury extended a temporary restraining order and announced a preliminary injunction barring Kalshi from offering sports, elections, and entertainment-related event contracts in the state without a gaming license, ruling that placing money on sporting outcomes through Kalshi was “indistinguishable” from betting through a licensed sportsbook (Raymond, 2026). By contrast, the Third Circuit ruled 2-1 in Kalshi’s favor on April 7, 2026, in a challenge brought by New Jersey regulators, holding that the CEA preempts state gaming law, a direct circuit split that significantly raises the likelihood of eventual Supreme Court intervention (Stutz, 2026).
Notably, the Trump administration has expressed support for Kalshi’s position. CFTC Chair Michael Selig, appointed by Donald Trump, publicly argued in a Wall Street Journal op-ed that CFTC oversight of prediction markets should take precedence over state law (Selig, 2026).
Coinbase Financial Markets Inc., which partners with Kalshi, filed a preemptive federal lawsuit in Michigan’s Eastern District prior to the state’s action, seeking a declaration that the CEA preempts Michigan’s LSBA as applied to event contracts (MLive, 2025). That federal case remains pending. One day after Michigan filed its complaint, Kalshi’s competitor Polymarket filed its own preemptive suit against the Michigan Attorney General and MGCB (Frankel, 2026).
Conclusion
Michigan’s complaint against Kalshi is one of the most detailed state-level legal challenges to the prediction market industry to date. By combining a statutory sports betting violation with a common law nuisance claim, an analysis of the platforms behavioral design, and a public health framing, the State has constructed a cased that goes beyond a simple licensing dispute, The central legal tension, the CFTC’s federal regulatory authority over event contracts displaces state authority to regulate these contracts is one that appears likely to require resolution by federal appellate courts, and potentially the United States Supreme Court, until that question is answered, prediction market operators and state gaming regulators appear destined to remain on a collision course.
Attorney General v. Peterson, 164 N.W.2d 43 (Mich. 1969).
Frankel, K. (2026, March 11). Polymarket’s fight is for next generation of financial markets. Bloomberg Law. https://news.bloomberglaw.com/legal-exchange-insights-and-commentary/polymarkets-fight-is-for-next-generation-of-financial-markets
Hauser, J. (2026, March 25). Phil Jackson to UNC viral fake rumors dupe fans about Hubert Davis’ replacement. Yahoo Sports. https://sports.yahoo.com/articles/phil-jackson-unc-viral-fake-152000347.html
Michigan Gaming Control Board. (2019). Lawful Sports Betting Act, Mich. Comp. Laws § 432.401–432.421.
MLive. (2025, December 19). Coinbase sues, arguing Michigan sports betting laws don’t apply to “prediction markets.” https://www.mlive.com/news/2025/12/coinbase-sues-arguing-michigan-sports-betting-laws-dont-apply-to-prediction-markets.html
Nessel v. KalshiEx LLC, No. 26-1078-CZ (Mich. 30th Cir. 2026). https://www.michigan.gov/ag/-/media/Project/Websites/AG/releases/2026/March/Kalshi-Complaint
Raymond, N. (2026, April 3). Nevada judge extends ban on Kalshi operating prediction market in state. Reuters. https://www.reuters.com/world/us/nevada-judge-extends-ban-kalshi-operating-prediction-market-state-2026-04-03/
Selig, B. Q. (2026, February 17). States encroach on prediction markets [Op-ed]. Commodity Futures Trading Commission. https://www.cftc.gov/PressRoom/SpeechesTestimony/seligstatement021726
Sisk, C. (2026, March 6). Michigan sues to shut down Kalshi prediction market’s sports-betting operation. Crain’s Detroit Business. https://www.crainsdetroit.com/politics-policy/michigan-sues-kalshi-over-online-sports-betting
Stutz, H. (2026, April 6). Kalshi loses appeal, Nevada judge keeps the company on the sidelines. The Nevada Independent. https://thenevadaindependent.com/article/kalshi-loses-appeal-nevada-judge-keeps-the-company-on-the-sidelines
Maria L. Price is a second-year doctoral student at Troy University in the Sport Management Program with a research focus in professional sport sociology. She lives in Raleigh, NC.
Michael S. Carroll serves as a Professor of Sport Management at Troy University, where he specializes in sport law and risk management within the sport and recreation industries. A prolific scholar, he has authored over 40 articles and delivered more than 50 presentations at professional conferences. Dr. Carroll also plays a vital role in mentorship, working closely with candidates in Troy’s doctoral program. He lives in Orlando, FL.
