The State of Wisconsin has formally petitioned the United States District Court for the Western District of Wisconsin for a preliminary injunction blocking Kalshi and its partners from offering trading of designated contract markets based on sporting events to people in the state. If granted, the injunction would remain in place until the court rules on the merits of Wisconsin’s lawsuit against Coinbase, Kalshi, and Robinhood.
In its brief stating its arguments for injunctive relief, Wisconsin’s claims directly confront all the pertinent arguments that Kalshi and others have made in defense of prediction market exchanges in other court revenues. The path forward for this litigation is unclear compared to other courts, as the appellate court in question has yet to issue any decisions in a dispute between a state government and exchange interests.
Wisconsin asks court to stop sports contract trading on Kalshi
The brief was filed with the district court on Tuesday, bringing State of Wisconsin v. Kalshi et al. forward to its next stage. The state initiated that action in April.
Wisconsin’s argument to the court focuses on three main points pertinent to its request.
- Trading sports event contracts on Kalshi and its partners is tantamount to illegal sports wagering and a violation of Wisconsin’s public nuisance statute
- Wisconsin’s population is suffering irreparable harm from the illegal gambling
- The ramifications of enjoining Coinbase, Kalshi, and Robinhood have greater positive significance for Wisconsin than they have negative implications for Kalshi
To support its argument that Wisconsin’s population is suffering irreparable harm, the brief points to inhibitions of “a classic exercise of the State’s police power.” It adds that “unregulated gambling poses serious public health risks by threatening a gambler’s financial, economic, emotional, and physical well-being, as well as the well-being of their families and communities.”
Wisconsin also addresses claims of preemption of state law by the federal Commodity Exchange Act (CEA). The brief argues against conflict and field preemption in this context, meaning that Wisconsin’s sports betting laws aren’t in intense direct conflict with the CEA and that the CEA does not explicitly confront state sports wagering laws in its text.
None of the defendants have filed a response to Wisconsin’s motion yet, but those should be forthcoming. The ruling on this request will likely trigger escalation to the US Seventh Circuit Court of Appeals.
US Seventh Circuit more likely to face petitions for review in prediction market disputes
The Seventh Circuit is one of the few appellate courts that has yet to decide on the legality of trading on prediction market exchanges. That intervention is even more inevitable because of the action in Wisconsin.
Regardless of how the Western District of Wisconsin rules, the party or parties that end up on the unfavorable side of that decision are likely to appeal. However, the Seventh Circuit was already in play on two other fronts.
Wisconsin is one of the several states facing litigation from the Commodity Futures Trading Commission (CFTC) regarding its attempt to enforce state laws against CFTC-registered exchanges. Additionally, the Ho-Chunk Nation is proceeding with its lawsuit against Kalshi, which is also playing out in the Western District of Wisconsin.
Another matter within the Seventh’s jurisdiction also arose on Tuesday, albeit in a different state.
Illinois asks court to stay CFTC lawsuit pending Coinbase claims
Also on Tuesday, Illinois asked the US District Court for the Northern District of Illinois to issue a stay in the CFTC’s lawsuit against itself. The basis for that request is that the issues at stake in the dispute are identical to another case already in progress in the same court.
The CFTC sued Illinois in April for similar reasons as those in question in the CFTC’s case against Wisconsin. That litigation may take on greater importance as Illinois is close to finalizing its fiscal year 2027 budget, which includes tax assessments on prediction market trading revenue.
The case that Illinois is asking for a stay in light of is Coinbase v. Rauol et al. Kwame Rauol is the attorney general of Illinois and Coinbase has asked the court to grant injunctive relief against Illinois authorities similar to what Wisconsin is seeking, but obviously from the opposite angle.
All of these cases could rise to the Seventh Circuit’s attention over the coming months, some sooner than others. As the wait for a definitive ruling from the US Supreme Court continues, these preliminary actions will help to shape the mounting precedent on prediction market operation in the US.
