Wisconsin's attorney general filed three lawsuits arguing prediction market contracts are illegal sports bets, escalating a jurisdictional battle between states and the CFTC that is almost certainly headed to the Supreme Court.
Wisconsin's attorney general filed three lawsuits on 23 April against Kalshi, Polymarket, Coinbase, Robinhood and Crypto.com, arguing that their prediction market contracts are illegal sports bets under state law and demanding they stop serving Wisconsin residents immediately.
Attorney General Josh Kaul's complaints, filed in Dane County court, target what regulators have long suspected but few have been willing to test: whether event contracts that let users wager on the outcome of an NBA playoff game or an NCAA tournament bracket are financial instruments or simply gambling dressed in fintech language. The complaints describe Wisconsin residents placing bets on which team would win a Final Four matchup, which would cover the point spread, and which would be first to score ten points.
The answer has enormous consequences. If prediction markets are swaps — as Kalshi has argued, and as a Third Circuit ruling earlier this month appeared to support — they fall under the Commodity Futures Trading Commission's exclusive federal jurisdiction. If they are bets, they fall under state gambling laws, and states like Wisconsin, where commercial sports betting is illegal outside tribal compacts, can shut them down entirely.
Kaul's office isn't being subtle about which side it's on. The filings emphasise that platforms collect transaction fees on every contract, likening the model to a casino taking a cut from the house floor. The three suits divide the defendants into logical groupings: one pulls in Kalshi alongside distribution partners Robinhood and Coinbase, which list Kalshi's event contracts on their platforms and take a commission; a second targets Polymarket directly; a third names Crypto.com.
Wisconsin isn't acting alone. New York's attorney general has called each contract 'a bet' in her own proceedings. Arizona has filed suit. Connecticut and Illinois have taken action. But the CFTC itself has pushed back — on 3 April, the commission sued Connecticut, Arizona and Illinois directly, arguing that federal jurisdiction pre-empts state gambling laws and that a 'fragmented patchwork of state regulations' is exactly what Congress rejected when it created the CFTC's mandate.
It's an unusual posture — a federal regulator going to court to protect the companies it oversees from state enforcement, rather than pursuing them itself. The CFTC's chairman declared that the agency would 'safeguard its exclusive regulatory authority over these markets,' a statement that reads less like neutral oversight and more like choosing a side.
The companies' legal teams have staked out their ground. Coinbase's chief legal officer, Paul Grewal, argued that Congress intended prediction and derivatives markets to be regulated nationally through the CFTC, not state-by-state. Kalshi pointed to the Third Circuit's April decision, which treated the CFTC's choice not to block its contracts as a tacit endorsement. That interpretation is contested — the CFTC declined to block the contracts under the previous administration, and the current commission's willingness to defend that inaction against states is a separate, politically charged decision.
For Coinbase and Robinhood, the exposure extends beyond prediction markets. Both distribute Kalshi's contracts as intermediaries, meaning a finding that those contracts constitute gambling could classify them as operators of unlicensed gambling platforms. Several states attach criminal penalties to that classification, not just civil fines. The SEC and CFTC have spent the past year trying to draw clearer jurisdictional lines between their respective domains; Wisconsin's suits threaten to add a third layer of authority — state gaming commissions — to an already crowded regulatory map.
The case is almost certainly Supreme Court-bound. The question of whether the CFTC's jurisdiction over event contracts pre-empts state gambling laws has no definitive federal answer. The Third Circuit gave Kalshi a favourable reading, but it addressed the CFTC's authority, not the states'. No circuit has ruled directly on pre-emption itself.
The practical stakes are substantial. Prediction markets grew rapidly through the 2024 election cycle and haven't slowed since. Kraken's recent $550 million acquisition of Bitnomial shows the scale of institutional capital flowing into CFTC-regulated derivatives infrastructure. A ruling that subjects these platforms to 50 different sets of state gambling laws — each with its own licensing regime, prohibited categories and consumer protections — would fundamentally alter the economics of the industry.
Wisconsin's constitution bans lotteries and most forms of commercial betting outside tribal casinos. Three lawsuits, five defendants, and a question that only the Supreme Court can settle.
