The Commodity Futures Trading Commission (CFTC) has faced a setback in its effort to prevent Wisconsin from regulating prediction market platforms operating within its borders. In late April, the CFTC filed a lawsuit in federal court against Wisconsin Governor Tony Evers, Attorney General Josh Kaul, and the state's gaming authority shortly after state officials initiated their own actions against several CFTC-registered prediction markets, such as Coinbase, Crypto.com, Kalshi, and Polymarket.
In its litigation, the CFTC accused Wisconsin of attempting to unjustly "criminalize" federally regulated markets beyond its state powers, asserting that this action would infringe upon the CFTC's exclusive federal jurisdiction over event contracts. The commission argued that Wisconsin’s strict enforcement of these supposedly superseded state laws would inflict "irreparable harm" to both the defendant companies and the CFTC.
However, in a ruling issued on Wednesday, U.S. District Judge William C. Griesbach asserted that the CFTC failed to establish either the likelihood of suffering irreparable harm or the potential for success in its claims. This decision was made shortly after a federal judge in Minnesota issued a preliminary injunction blocking a similar state ban on prediction markets.
Griesbach noted that while operators providing sports-related event contracts in Wisconsin would indeed face economic repercussions should the state impose a ban, he found it unclear how the federal government would endure any similar harm if Wisconsin pursued enforcement of its gambling laws against these operators.
The CFTC argued that Wisconsin's gambling laws do not encompass the sports event contracts from its registrants and that even if they were applicable, they would be overridden by federal commodities regulations. However, Griesbach challenged this reasoning, pointing to a fundamental inconsistency. He stated, "Of course, if Wisconsin’s gambling statutes do not cover sports-related event contracts, then the CFTC’s case against the State makes no sense. There is no reason to enjoin the State from enforcing a statute that does not apply."
He further explained that application of Wisconsin’s gambling statutes remains ultimately a matter of state law. However, he observed that the explicit wording of the state's commercial gambling statute appears to include sports-related event contracts from CFTC registrants.
Moreover, Griesbach expressed his disagreement with the premise that the Commodity Exchange Act (CEA) encompasses the type of event contracts produced by operators like Kalshi. He acknowledged a decision from the U.S. Court of Appeals for the Third Circuit earlier in April that had ruled 2-1 in favor of recognizing Kalshi's sports event contracts as "swaps" under the CEA. Yet, Griesbach pointed out that the Third Circuit did not provide any indication that adherence to state law would necessitate a violation of federal law.
"Notwithstanding the [Third Circuit] majority’s conclusion, this court finds that the CFTC has not shown that it is likely to prevail on its argument that the CEA’s definition of ‘swaps’ covers the event contracts offered by entities such as Kalshi," Griesbach stated, leaving the CFTC’s request for a preliminary injunction denied based solely on this reasoning.
Despite these developments, Griesbach found that even assuming the event contracts fell under the CEA's definition of "swaps," the CFTC would almost certainly struggle to convince the court that the CEA precludes state law enforcement.
Additionally, the judge dismissed attempts by Crypto.com, Kalshi, and the American Gaming Association (AGA) to intervene in the case, noting the companies were sufficiently represented by the CFTC and that the interests of the AGA were addressed through Wisconsin's position. Griesbach also denied a request from Wisconsin to dismiss the case, allowing it to continue.
Furthermore, the CFTC plans to appeal the ruling. Wisconsin is among nine states that the CFTC has sued in federal court, chiefly reacting to local efforts to enforce state gaming regulations aimed at limiting access to sports contracts.
This legal confrontation over prediction markets in Wisconsin unfolds alongside an earlier case, where a federal judge refused the Ho-Chunk Nation’s request for a preliminary injunction to prohibit Kalshi from operating on tribal lands. Portions of that lawsuit pertaining to the Racketeer Influenced and Corrupt Organizations Act were dismissed, but the primary legal considerations related to the Indian Gaming Regulatory Act remained intact.
In April, Governor Evers approved legislation that permits statewide online sports betting using a ‘hub-and-spoke’ model associated with tribal gaming. This model relies on the understanding that bets occurring on tribal land are considered legally valid if the technology facilitating these bets is located on tribal property. During legislative discussions about this bill, tribal leaders, lawmakers, and gaming operators pointed to the implications of prediction markets as a driving force behind the initiative, illustrating the competitive dynamics at play in Wisconsin's evolving betting landscape.
