The Commodity Futures Trading Commission (CFTC) failed in its initial attempt to block Wisconsin’s efforts to shut down prediction market platforms in the state.
The CFTC sued Wisconsin Gov. Tony Evers, Attorney General Josh Kaul, and the state’s gaming regulator in federal court in late April. The commission filed that suit just days after state authorities lodged their own separate lawsuits in state court against numerous CFTC-registered prediction markets, including:
- Coinbase
- Crypto.com
- Kalshi
- Polymarket
CFTC failed to show likelihood of success or harm
The CFTC stated in its filing that Wisconsin was attempting to “criminalize” federally regulated markets in a manner that went beyond its own state powers and intruded upon the CFTC’s exclusive federal authority to oversee event contracts. The commission also claimed that Wisconsin’s “aggressive enforcement of their preempted state laws” would cause both the defendant companies and the CFTC itself “irreparable harm.”
However, in an order issued on Wednesday, U.S. District Judge William C. Griesbach ruled that the CFTC did not demonstrate that it would suffer that irreparable harm, nor did it show that it is likely to succeed on the merits of its argument. The denial comes just days after a federal judge in Minnesota granted a preliminary injunction stopping a state ban on prediction markets.
While Griesbach acknowledged that the businesses that offer sports-related event contracts in Wisconsin will suffer economic loss if the state is allowed to prohibit those activities, the judge wrote that it is not apparent that the federal government would be similarly harmed or suffer injury if Wisconsin enforced state gambling laws against the operators.
Judge says CFTC argument is illogical
The CFTC argues that Wisconsin gambling statutes do not cover the sports event contracts offered by its registrants, and that even if they did, they would be pre-empted by federal commodities regulations.
However, Griesbach flagged what he sees as a contradiction of logic in that argument.
“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,” he wrote. “There is no reason to enjoin the State from enforcing a statute that does not apply.”
Griesbach added that the application of Wisconsin’s gambling statutes “is ultimately a state-law question”, but for the purposes of the matter at hand, the “plain” language of the state’s commercial gambling statute “seems to cover” sports-related event contracts offered by CFTC registrants.
Wisconsin judge goes against Third Circuit decision
Griesbach also fundamentally disagreed with the notion that the Commodity Exchange Act (CEA) definition of “swaps” covers the kind of event contracts offered by operators such as Kalshi.
The Wisconsin judge acknowledged a U.S. Court of Appeals for the Third Circuit decision in April, when the appellate court ruled 2-1 in favor of finding that Kalshi’s sports event contracts fall under the CEA’s definition of “swaps”. However, he added that the Third Circuit “did not identify any way in which compliance with state law would require a regulated party to violate 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,” wrote Griesbach.
“For this reason alone, the CFTC’s motion for a preliminary injunction would be denied.”
He added that even if event contracts were considered to fall under the CEA’s definition of “swaps,” the CFTC would be unlikely to prevail on its argument that the CEA preempts state law.
Prediction markets, AGA cannot intervene in Wisconsin case
As Griesbach noted, Crypto.com, Kalshi and the American Gaming Association (AGA) all moved to intervene in the CFTC case, the companies as plaintiffs and the AGA as a defendant. The AGA based its motion in part on the “significant competitive advantage” that it argued prediction markets would enjoy over its members, which participate in state-regulated gaming that is licensed and taxed.
The judge denied each of those motions, writing that the prediction market firms are well-represented by the CFTC and that the state of Wisconsin accounts for the AGA’s interests. Griesbach also denied Wisconsin’s attempt to dismiss the case.
The broader case will continue in Wisconsin, but the CFTC is not entitled to short-term injunctive relief in the judge’s eyes. The commission intends to appeal the decision.
Tribal factors underpin Wisconsin PMs battle
Wisconsin is one of nine states that the CFTC has sued in federal court, mostly in response to efforts to enforce state gaming laws and shut off access to sports contracts.
The CFTC lawsuit against Wisconsin is not the only one related to prediction markets in that state, either. In May, a judge in a separate federal court case denied the Ho-Chunk Nation’s request for a preliminary injunction to stop Kalshi from operating on its lands. They also dismissed portions of the lawsuit related to the Racketeer Influenced and Corrupt Organizations Act (RICO Act), but upheld the overarching case as a matter related to the Indian Gaming Regulatory Act (IGRA).
The tribe claims that Kalshi is violating IGRA by offering a sports betting equivalent on tribal land.
A month before that update in the Ho-Chunk case, Gov. Evers signed off on a bill in April that legalizes statewide online sports betting under the ‘hub-and-spoke’ tribal gaming model. Fundamental to that model is the interpretation that IGRA deems bets to have legally taken place on tribal lands as long as the server or device used to process the betting is physically located on tribal lands.
During legislative debate of that bill, tribes, lawmakers and state-regulated gaming operators cited the impact of prediction markets as a reason for passing the legislation and opening a tribal-controlled sports betting market in Wisconsin.
