A federal judge in Wisconsin rejected the Commodity Futures Trading Commission's (CFTC) application for a temporary injunction, failing to prevent the state from continuing enforcement action against several prediction market platforms under gambling laws. This means that the legal risks faced by platforms such as Kalshi and Polymarket at the state level have not yet been eliminated.

The ruling was made on July 29. The CFTC had initially hoped the court would halt Wisconsin's enforcement, arguing that the relevant sports event contracts fell under federally regulated prediction market products and should be under the unified jurisdiction of the CFTC. However, the court has not accepted this argument at this stage.

The court did not recognize that federal regulation takes precedence.

Presiding Judge William Griesbach held that a platform's registration with or regulation by the CFTC does not automatically exempt it from Wisconsin gambling laws. The core issue in the case is whether federal law automatically overrides state law, the so-called "preponderance of state law" problem.

In this step, the court did not find that the Commodity Exchange Act was sufficient to directly cover state gambling rules. The judge also noted that the CFTC failed to demonstrate that sufficiently clear and irreparable harm would occur without an injunction, thus failing to meet the requirements for issuing a preliminary injunction.

In addition, the court rejected the intervention application filed by Kalshi and Crypto.com.

Five platforms still face state lawsuits

This dispute stems from a lawsuit filed in Wisconsin this April. The platforms named include:

• Kalshi
• Polymarket
• Crypto.com

The state government also named Robinhood and Coinbase as defendants in the lawsuit. Wisconsin alleges that these platforms offered contracts tied to the outcomes of sporting events but did not possess the required gambling or betting licenses, thus violating the state's gambling regulations.

The platform defines these products as financial contracts or derivatives, while state regulators believe that their actual effect is no different from sports betting.

The matter may be appealed to the Seventh Circuit Court.

This ruling complicates the legal landscape for the U.S. prediction market industry. Previously, the U.S. Third Circuit Court of Appeals in New Jersey had ruled in favor of Kalshi in a related case, finding that federal law might take precedence over state-level restrictions.

The Wisconsin case is currently developing in the opposite direction. The case is expected to return to the state court for further proceedings. Legal expert Daniel Wallach believes that the Wisconsin court may issue a preliminary injunction restricting these platforms from continuing to offer sports event contracts in the state.

The CFTC and Kalshi are also considered likely to appeal to the U.S. Court of Appeals for the Seventh Circuit. If the case escalates further, it could lead to a new round of judicial scrutiny regarding which has greater jurisdiction over prediction markets: federal regulators or state governments.