Michigan court denies Coinbase, holding event contracts are not swaps

What happened

Judge Shalina D. Kumar of the US District Court for the Eastern District of Michigan denied Coinbase Financial Markets' motion for a preliminary injunction on 6 August, in an order of 47 pages. Coinbase sued in December 2025 to stop the Michigan attorney general and the Michigan Gaming Control Board enforcing the state's gambling laws against it, arguing that the sports event contracts it wants to offer Michigan customers through Kalshi, a CFTC-registered designated contract market, are swaps within the exclusive jurisdiction of the CFTC, so that Michigan's Lawful Sports Betting Act is preempted under the Supremacy Clause. The court found that Coinbase had standing, on the strength of the board's 2025 enforcement threats and its correspondence with the CFTC, and then found against it on every substantive ground. On the statute, the order holds that reading the swap definition at 7 USC 1a(47)(A)(ii) widely enough to cover contracts that 'run the gamut from politics to music to climate to movies to sports', which is Coinbase's own description of them, would render the definitions on either side of it superfluous and would carry its terms 'far beyond the financial subject matter covered in surrounding subsections'. Because trading swaps away from a designated contract market is itself illegal, the order adds, that reading would mean 'any individual who engages in [sports] gambling outside of a DCM [might] commit a felony', quoting Judge Roth's dissent in the Third Circuit's Flaherty decision, and calls the result absurd. It then rejects express, field and conflict preemption in turn, writing of the last of them that 'Coinbase's averments are, in a word, applesauce.' The balance of the equities and the public interest 'heavily favor the Defendants'. The board itself was dismissed for want of jurisdiction under the Eleventh Amendment, leaving the attorney general and the board's directors as defendants. Thirty-three federally recognised Indian tribes and the City of Detroit filed amicus briefs supporting Michigan.

Why it matters

An event contract venue is worth what its permission is worth, and the permission Coinbase asked for was a national one. Michigan's Lawful Sports Betting Act confines internet sports betting to licensed commercial casinos and federally recognised tribes, so the alternative to preemption is not a licence Coinbase can buy but a market it cannot enter; the court's answer to the argument that compliance is prohibitively costly, quoting the Sixth Circuit, was that 'expensive does not mean impossible'. The sharper finding sits in the conflict analysis. Coinbase conceded that these contracts involve gaming, and 17 CFR 40.11(a)(1) prohibits registered entities from listing contracts that involve gaming, so the order concludes that if Coinbase offered them today, 'based on a plain reading of § 40.11(a)(1) it would more than likely violate federal law'. That turns the industry's framing around: the case for state preemption rests on a federal permission that, on this reading, has not been granted either. The amicus line-up says who is paying for the fight. The tribes argued that a win for Coinbase would undermine tribal sovereignty over gaming on Indian lands, and Detroit argued that lost casino income would cut its tax revenue, which is the incumbent rent that event contracts route around.

What is not settled

This is a ruling on likelihood of success, not a judgment that the contracts are unlawful, and the case continues; an appeal from the denial lies to the Sixth Circuit, whose own decision in KalshiEX LLC v. Schuler in April the order leans on repeatedly. The wider question is unresolved and the order sets out the division: courts in Nevada, the Southern District of Ohio and the Western District of Michigan have held that sports event contracts are not swaps, while the Third Circuit in Flaherty held that all event contracts are, with Arizona and Middle Tennessee agreeing and the District of Minnesota concluding preliminarily that the definition covers some of them. The regulation the order relies on may not stand still either: the CFTC has proposed amendments to its event contract rules, published at 91 Fed. Reg. 12516 on 16 March 2026, and the court applied § 40.11(a)(1) as it currently reads while noting the proposal. Neither report carries a response from Coinbase, and neither says whether it will appeal. Both reports cited here are crypto trade publications, and no general-interest or legal outlet was found carrying the order.