KEY TAKEAWAYS
- Polymarket is seeking an injunction against Ohio officials after the state’s gaming regulator sent it and other prediction market operators a cease-and-desist letter this month.
- The company claims not only that the Commodity Exchange Act’s authority supersedes state gaming laws, but that Ohio’s gaming rules and enforcement actions are “discriminatory” and “unconstitutional”.
- A gaming attorney explains why he believes some aspects of Polymarket’s arguments miss the mark.
Polymarket petitioned a federal court for an injunction against Ohio in recent days, arguing that the state’s attempt to protect its online sports betting market by taking enforcement action against prediction markets is discriminatory and unconstitutional.
“Ohio’s threatened enforcement through its protectionist licensing regime violates the U.S. Constitution’s Commerce Clause and is preempted by the Commodity Exchange Act (CEA),” reads the complaint filed Oct. 16. “On the view that lawful derivatives are sports gambling, Defendants demand that Polymarket US’s nationwide exchange contort itself to fit a state regulatory scheme designed for in-State casinos.”
Counsel for Polymarket noted that Ohio sports betting laws make wagering licenses available only to approved applicants with an in-state physical presence.
“Assuming a license were available, Polymarket US’s operations would not just have to be run from Ohio—they would be limited to serving only those physically present in Ohio, cutting the company off from the rest of the United States,” the complaint adds. “These discriminatory, balkanizing measures violate the Constitution’s promise of open, interstate commerce.”
Polymarket named Ohio leaders including Attorney General Andy Wilson and Ohio Casino Control Commission Executive Director Andromeda Morrison among the defendants, and asked the court for preliminary and permanent injunctions against Ohio. SBC Americas reached out to Wilson’s office and the OCCC for comment.
Attorney: Polymarket’s Ohio arguments boil down to basics
Polymarket also leaned on more familiar arguments used in other prediction markets litigation, including the notion that the CEA gave the Commodity Futures Trading Commission (CFTC) the sole regulatory authority over event contracts traded on CFTC-registered exchanges. designated contract markets, above the jurisdiction of state gaming laws.
Holland & Knight partner and gaming practice deputy team leader Joshua Kirschner told SBC Americas that although the language around Ohio’s sports betting regime being unconstitutional and discriminatory is striking, Polymarket’s arguments boil down to bare bones.
“If you strip it all away, what Polymarket is really saying is just that an intrastate sports betting regime should not be applied to interstate commodities activity that is appropriately regulated by the CEA,” Kirshcner said. “It shouldn’t be read to be saying that every state sports betting regime would be illegal, per se.
“What they really mean is that such an intrastate regulatory regime is allegedly, on its face, inapplicable and illegal as applied to interstate commerce … It’s a backhanded way of also saying that Polymarket conducts purely interstate commerce that is regulated solely by federal law.”
But lawsuit’s language misses mark, says lawyer
However, Kirschner criticized the apparent argument that the OCCC’s sports betting market is illegal on the basis of protectionism. He noted that Polymarket’s argument seems to tee up a federal court not to opine on the legality of whether Polymarket is properly categorized as event contract swaps under the CEA, but to opine entirely on the legality of a state sports betting regime for intrastate activity.
“This argument that the OCCC’s regime is merely for protectionist purposes and therefore illegal on its own seems to miss the point on a few counts,” he added. “That would be news to tons of states and tons of state laws.
“The argument is that this regulatory regime is both inapplicable and cannot survive the scrutiny of preemption questions. But the way this is drafted, and the way it willingly handwaves the entire state regime for sports betting as serving no purpose but to protect in-state industry, probably misses the mark.”
Ohio regulator hit Polymarket, 9 others with cease-and-desists
Polymarket filed the complaint two weeks after the OCCC sent cease-and-desist letters to it and nine other 10 companies, accusing them of illegally offering or participating in sports event contracts in the state. The commission said sports event contracts meet Ohio’s definition of sports gaming and therefore require a state license, and ordered the recipients to shut down sports by Oct. 16.
Polymarket filed its lawsuit that very day, claiming that Ohio’s threatened enforcement action against the company violates the Commerce Clause “by discriminating against out-of-State commerce.”
“Polymarket US therefore faces a real and imminent risk of enforcement, exposing it to civil penalties, criminal prosecution, forced cessation of operations within Ohio, and severe collateral consequences to its nationwide operations,” adds the lawsuit in reference to the C&D. “… Even the threat of enforcement forces Polymarket US to choose between exercising its federal right to operate nationwide and submitting to unlawful state coercion.”
The OCCC sent those letters on the heels of the U.S. Court of Appeals for the Sixth Circuit siding with Ohio and Tennessee against Kalshi. The three-judge panel found unanimously that Kalshi’s sports event contracts are not swaps under the CEA and that, even if they were, federal commodities law would not preempt either state’s sports betting laws.
Ohio Gov. DeWine says prediction markets lawsuits will follow
Meanwhile, Ohio Gov. Mike DeWine said this week that the state will begin filing lawsuits against recipients of the C&Ds that do not comply with the orders, as quoted by Statehouse News Bureau.
“The law is very clear,” DeWine said. “The court decisions have been very clear. The attorney general of Ohio is taking actions he needs to take. These are not self-executing. You have to actually go out and file these suits, and that’s what we are going to do.”
