Wisconsin filed lawsuits against Kalshi, Polymarket, Coinbase, Robinhood, and Crypto.com last week, accusing the platforms of running unlicensed gambling operations in the state. Days later, the U.S. Commodity Futures Trading Commission responded by suing Wisconsin in federal court, making it the fifth state to face legal action from the derivatives regulator in a jurisdictional battle that shows no signs of cooling off.
CFTC Chairman Mike Selig, who operates as the sole member of a commission designed for five, has turned this fight into something of a personal crusade. His message to states trying to regulate prediction markets under gaming laws was blunt: “If you interfere with the operation of federal law in regulating financial markets, we will sue you.”
That promise has now translated into a string of federal lawsuits stretching from the Southwest to the Midwest to the Northeast. The CFTC had already sued Illinois, Arizona, and Connecticut before adding New York to the list just days ago. Wisconsin makes five, and if the pattern holds, any state attorney general thinking about going after Kalshi or Polymarket should probably budget for federal litigation.
The Core Legal Question: Gambling or Derivatives?
At the heart of this multi-state conflict sits a deceptively simple question that lawyers will probably argue about for years: when someone places a bet on whether the Green Bay Packers will win the Super Bowl or whether it will rain in Milwaukee on a given Tuesday, is that gambling or derivatives trading?
States like Wisconsin say it’s obviously gambling. The platforms take money, users predict outcomes, winners get paid. That’s a wager. Wisconsin’s gaming commission exists precisely to regulate this kind of activity, and the state argues it has every right to enforce licensing requirements and consumer protections.
The CFTC sees it differently. Event contracts, the agency argues, are a form of derivatives because they derive their value from the outcome of future events. The CFTC has regulated commodity futures and options for decades, and Selig’s position is that prediction markets are simply a new flavor of the same financial instruments. Under this reading, the Commodity Exchange Act gives the CFTC “exclusive jurisdiction” over these products, and state gambling laws cannot override federal securities regulation.
Kalshi, which operates as a CFTC-designated contract market, has built its entire business model around this interpretation. The company offers contracts on everything from economic data releases to weather events to political outcomes, all under the regulatory umbrella of the federal derivatives agency. Polymarket took a different path, keeping U.S. users off its main overseas platform after a 2022 settlement with the CFTC, though Bloomberg reported today that the company is seeking agency approval to bring American traders back.
The Wisconsin lawsuit named both platforms alongside Coinbase, Robinhood, and Crypto.com for allegedly facilitating access to prediction markets without the proper state licenses. Within days, Selig had filed the CFTC’s response in the U.S. District Court for the Eastern District of Wisconsin.
Early Court Signals Favor Federal Preemption
If states are hoping the courts will side with them, early indicators suggest they might be disappointed. Earlier this month, a federal judge in Arizona paused that state’s criminal prosecution of Kalshi, arguing that the CFTC is likely to succeed in proving that federal law preempts state gambling statutes.
That ruling did not settle the matter permanently, but the reasoning signals where at least one federal judge thinks this is headed. If other courts follow similar logic, states could find their enforcement efforts blocked across the board.
The preemption argument has historical weight behind it. Federal law routinely overrides state law in areas where Congress has established a comprehensive regulatory scheme, and the Commodity Exchange Act gives the CFTC broad authority over derivatives markets. State gaming commissions have never before tried to regulate futures exchanges, and Selig’s legal theory is that prediction markets should receive the same treatment.
States counter that prediction markets are fundamentally different from traditional futures. When a farmer hedges corn prices, there is an underlying commodity and a legitimate economic purpose. When someone bets on the outcome of a sporting event, states argue, that is pure speculation with no hedging function. The consumer protection rationale for gambling regulation, including licensing requirements and addiction safeguards, should still apply.
Both sides have reasonable arguments, which is why this will probably end up before an appellate court or possibly the Supreme Court before it is fully resolved.
A One-Man Commission With a Singular Focus
What makes this legal campaign unusual is not just its scope but its source. Mike Selig is running the CFTC essentially alone. The commission is supposed to have five members, but with no other confirmed commissioners, Selig has the authority to direct the agency’s resources and priorities without the usual committee dynamics.
He has chosen to make prediction markets a central focus. While the agency handles routine oversight of traditional futures and swaps markets, the litigation against five states represents a significant allocation of enforcement attention. Each lawsuit requires CFTC lawyers to prepare briefs, argue motions, and potentially go to trial.
Critics might argue that a single commissioner should not be unilaterally committing the agency to such an aggressive legal posture. Supporters would counter that Selig is simply defending the CFTC’s statutory authority against state overreach.
The political context matters here too. Prediction markets became a hot topic during the 2024 election cycle, when platforms like Kalshi and Polymarket saw massive trading volumes on presidential and congressional races. Some politicians view these markets as valuable information tools that aggregate public sentiment. Others see them as gambling operations that should be tightly regulated or banned.
With the Senate slow to confirm new CFTC commissioners, Selig has had unusual latitude to shape the agency’s direction. His prediction markets campaign may define his tenure more than any other policy choice.
What This Means for Prediction Market Users
For people actually trading on these platforms, the legal uncertainty creates real complications. If you live in Wisconsin and want to use Kalshi, do you comply with state law by not using it, or do you rely on the CFTC’s position that the platform is federally legal? The answer might depend on which court rules first and how the appeals process unfolds.
Platforms themselves face the awkward position of operating under conflicting legal frameworks. Kalshi has CFTC approval to offer its contracts nationally, but state attorneys general clearly disagree with that interpretation. Polymarket kept U.S. users off its main platform precisely to avoid this kind of entanglement, though its reported effort to regain CFTC blessing for American access suggests the company sees an opening.
Coinbase and Robinhood, both of which offer some form of prediction market access, now face the peculiar situation of being sued by Wisconsin while the federal agency that ostensibly regulates them sues the state on their behalf. Neither company asked for this fight, but they are caught in the middle of it.
The broader crypto sector has been watching this unfold with a mix of fascination and concern. Prediction markets represent just one corner of the digital asset landscape, but the jurisdictional questions being litigated here could have implications for how federal and state regulators divide authority over other crypto products. If the CFTC successfully establishes exclusive federal preemption for event contracts, that precedent might strengthen arguments for similar treatment of other blockchain-based instruments.
The Litigation Map Keeps Expanding
Look at the list of states the CFTC has now sued: Illinois, Arizona, Connecticut, New York, and Wisconsin. These are not small states with minor populations. Combined, they represent tens of millions of potential prediction market users. The agency is not picking on obscure jurisdictions to establish easy precedents. It is going directly at major states with well-funded attorney general offices and sophisticated legal teams.
New York’s lawsuit against Coinbase and Gemini over their prediction markets businesses came just days before the Wisconsin action. The CFTC responded to New York almost immediately with its own federal suit, continuing the pattern of rapid counter-litigation that has characterized Selig’s approach.
Other states are watching. Washington State sued Kalshi back in March, and there is no indication that the CFTC’s lawsuits have deterred other states from considering their own enforcement actions. If anything, the high-profile legal battle might encourage additional states to join the fray, either to support their fellow state regulators or to stake out their own positions on gaming law enforcement.
The result is a fragmented regulatory landscape where the legal status of prediction markets depends heavily on which jurisdiction you are in and which court happens to rule next. Platforms are operating in a gray zone, users face uncertain legal exposure, and regulators on both sides are committed to seeing this through.
Where Does This End?
The Arizona court’s decision to pause criminal proceedings offers the clearest hint of how federal judges might ultimately resolve these disputes. If courts consistently find that the Commodity Exchange Act preempts state gambling laws for event contracts, the CFTC will have won its jurisdictional claim. States would retain authority over traditional casinos and sports betting but lose the ability to regulate prediction markets as gambling.
That outcome would vindicate Selig’s aggressive litigation strategy and establish the CFTC as the primary regulator of a rapidly growing industry. Kalshi, Polymarket, and their competitors would operate under a single federal framework rather than navigating 50 different state regimes.
Alternatively, if courts side with states or split the difference in some complicated way, the regulatory picture becomes much messier. Platforms might need state-by-state licensing, users might face geographic restrictions, and the promise of a national prediction markets industry might shrink considerably.
For now, the lawsuits will proceed through the federal court system. Discovery, motions, oral arguments, and eventual rulings will take months or years. Appeals will follow. The legal question that seemed so simple, gambling or derivatives, will be dissected by judges, law professors, and regulatory lawyers until some definitive answer emerges.
Wisconsin thought it was enforcing its gambling laws against companies it viewed as unlicensed operators. Instead, it became the fifth state named in what is turning into the defining regulatory battle over whether prediction markets belong to the federal government or the states. Selig promised to sue anyone who interfered with federal market regulation. He keeps making good on that promise.
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