Novig operator Ludlow Exchange has sued Wisconsin Attorney General Josh Kaul and state gaming administrator John Dillett in federal court, seeking to stop the state from treating its sports event contracts as illegal gambling. The case asks whether those contracts should be handled as swaps under the Commodity Exchange Act and overseen by the Commodity Futures Trading Commission, or as bets subject to Wisconsin gambling law.

The dispute carries broader significance beyond one state. Prediction markets have grown rapidly, and a meaningful share of activity is tied to crypto infrastructure, including stablecoins, on-chain settlement and crypto-linked trading volume on platforms such as Kalshi and Polymarket.

A preemptive filing against Wisconsin

Ludlow Exchange filed a 45-page complaint in the U.S. District Court for the Western District of Wisconsin on Friday. The company said it began offering event contracts to Wisconsin residents just over a week earlier and is asking the court for preliminary relief before the state brings its own enforcement action.

Novig said the filing was necessary because Wisconsin has already taken similar steps against other operators. Beginning in April, the state sued Kalshi, Polymarket, Robinhood, Crypto.com and Coinbase over sports-related event contracts, alleging the products violated its commercial gambling laws and amounted to a public nuisance.

Federal derivatives law versus state gambling rules

At the center of the case is a jurisdiction fight. Novig argues that its sports contracts are swaps traded on a federally regulated market and therefore fall within the CFTC’s exclusive authority under the Commodity Exchange Act. Ludlow Exchange was authorized as a designated contract market regulated by the CFTC on June 16.

Wisconsin, by contrast, maintains that sports betting remains gambling under state law even if a product is offered through a federally recognized framework. The lawsuit points to several CEA provisions, including Section 2(a)(1)(A) on exclusive federal jurisdiction over futures and swaps traded on designated contract markets, Section 1a(47) on the definition of a swap, and Section 16(e) on federal preemption of certain state requirements.

The legal question is not settled. The Third Circuit ruled in KalshiEX LLC v. Flaherty that the CEA preempted New Jersey gambling law for Kalshi’s sports contracts because they were considered swaps on a CFTC-regulated market. But a federal court in Nevada reached a different preliminary conclusion in North American Derivatives Exchange v. State of Nevada, finding that sports contracts offered by Crypto.com were not shown at that stage to be swaps subject to the CFTC.

An uphill backdrop in Wisconsin

Novig’s challenge comes after an unfavorable development for the broader federal preemption argument in Wisconsin. A federal judge denied a CFTC request for a preliminary injunction against Wisconsin officials, saying the agency had not presented evidence sufficient to satisfy the court on its preemption theory. That case remains pending.

The split in court treatment matters because federal designation alone does not automatically shield an operator from state law. An exchange still must show that its contracts fit within the Commodity Exchange Act and that conflicting state restrictions are displaced.

Why crypto markets are watching

The case is being closely followed in crypto because prediction markets are increasingly running on crypto rails. Artemis data across 12 platforms showed prediction market volume reached $9.50 billion on August 16, up from $139.8 million a year earlier, a 67-fold increase.

Within that total, crypto-linked volume on Kalshi and Polymarket was $1.46 billion, equal to 15.4% of the market tracked. Any ruling that clarifies whether these products can operate across state lines or remain exposed to state-by-state challenges could shape how easily prediction markets connect to stablecoins, on-chain settlement and other crypto infrastructure.

Wider legal campaign and next steps

Wisconsin is the fifth state Novig has sued since August 4, following similar cases in New York, New Mexico, Massachusetts and Washington. The company’s recent court actions suggest a coordinated effort to secure federal protection as it expands. Before adopting its federally regulated exchange model, Novig had held a sports betting license in Colorado.

At the same time, the company has been expanding its public profile. Novig recently signed a marketing agreement with the New York Mets that gives it branding at Citi Field and in Mets broadcasts, while also providing access to official MLB data. The next confirmed step in Wisconsin is the court’s consideration of Novig’s request for preliminary relief as the broader fight over derivatives law and state gambling authority continues.

Source: Cryptopolitan