Prediction market firm sues to escape Wisconsin gambling law

In the new lawsuit, filed by Novig’s parent firm Ludlow Exchange LLC, the business asserts that it isn’t engaged in “gambling” but instead is “providing sports-based event contracts to customers across the United States.”

Event contracts pay out to customers who purchase a contract for a specific outcome, such as victory by a particular team in a particular game. In the lawsuit Ludlow Exchange asserts that an event contract is a “derivative” investment regulated exclusively by the federal Commodity Futures Trading Commission.

“The field here is not gambling,” the lawsuit states. “It is the regulation of trading on federally designated contract markets — the discrete activity over which Congress conferred exclusive jurisdiction” to the CFTC. 

DOJ communications director Riley Vetterkind referred a request for comment on the lawsuit to the department’s April 23 press release that announced its lawsuits against three other prediction market firms. 

“Thinly disguising unlawful conduct doesn’t make it lawful,” Attorney General Josh Kaul said then. “These companies’ alleged facilitation of sports betting in Wisconsin should be shut down.”

Novig entered the Wisconsin market the first week of August. Ludlow Exchange and Novig said in their lawsuit, which was first reported by WisPolitics, that they were filing the complaint because DOJ “could bring an enforcement action premised on the false notion that Novig is violating state gambling laws, exposing Novig to criminal liability for a Class I felony.”

The emergence of prediction markets including Kalshi and Polymarket has prompted states across the country to enact legislation and file lawsuits, Stateline reported in March.

The online platforms have been estimated to generate more than $13 billion every month, with the bulk of those revenues coming from sports betting, Stateline reported.

DOJ sued Kalshi, Coinbase, Polymarket and other prediction platforms in April, charging that their engagement in online sports betting violated the state’s online sports gambling law signed earlier that month. 

The new law legalized online sports betting in Wisconsin on the condition that the computer servers required are housed on tribal land. Until the law’s enactment, sports betting had been legal in Wisconsin since 2021, but only in person at tribal casinos.

The DOJ’s lawsuits said transactions on the prediction market platforms are “indistinguishable from an ordinary sports bet” as defined in Wisconsin law.

Kalshi, Polymarket, Coinbase and the other defendants in Wisconsin’s lawsuits have also asserted that they’re beyond the reach of state gambling bans. They contend they’re only subject to federal regulation by the CFTC, and that a federal appeals court has ruled states don’t have jurisdiction over prediction markets.

The defendants have moved Wisconsin’s cases into federal court, where lawyers are currently arguing over whether they should remain there or return to Dane County’s court.