Wisconsin Court Upholds State Gambling Laws Against CFTC

A federal judge in Wisconsin has ruled against the Commodity Futures Trading Commission (CFTC), allowing the state to enforce its gambling regulations on prediction market operators. The court dismissed the CFTC's claim that federal commodities law takes precedence over state gambling laws.

In a decision made on July 28, U.S. District Judge William Griesbach denied the CFTC's request for a preliminary injunction. The judge determined that the agency did not provide sufficient evidence to suggest it would likely succeed in its legal arguments.

This ruling enables Wisconsin to continue its enforcement actions against various operators, including Kalshi, Coinbase, Robinhood, Polymarket, and Crypto.com, while the federal case is still ongoing.

The CFTC had contended that contracts related to sports events should be classified as “swaps” under the Commodity Exchange Act (CEA), asserting that this classification would preempt state gambling laws. However, Judge Griesbach found the CFTC's arguments unconvincing, questioning whether these contracts truly meet the definition of swaps as outlined in the CEA.

He referenced a previous ruling from June in Michigan concerning Polymarket, warning that accepting the CFTC's interpretation could significantly broaden the federal commodities law's scope. He noted, “The definition of the term ‘swap’ becomes so broad that it sweeps in any agreement or transaction dependent on anything happening that could conceivably result in any degree of financial consequence for anyone.”

Furthermore, the judge pointed out that such a broad interpretation could infringe upon state gambling laws, as well as contract, property, and family law.

Ultimately, Judge Griesbach concluded that the CFTC had not demonstrated a likelihood of success in arguing that the CEA’s definition of ‘swaps’ applies to the event contracts provided by companies like Kalshi.

In addition, the court expressed doubt regarding the CFTC's assertion that Wisconsin’s gambling laws do not apply to sports event contracts. The judge indicated that the state's commercial gambling statute likely includes these products, stating, “The plain language of Wisconsin’s commercial gambling statute seems to cover sports-related event contracts registered with the CFTC.”

Even if the contracts were classified as swaps, the court found that the CFTC was unlikely to prove that federal law overrides Wisconsin's gambling regulations. Judge Griesbach concurred with a Sixth Circuit ruling from April that clarified the CEA’s grant of ‘exclusive jurisdiction’ pertains to the CFTC’s authority over other federal entities, not state gambling laws.

Additionally, the court rejected the CFTC’s argument regarding field preemption, emphasizing that the regulation of gambling has traditionally been within the purview of state authority.