Wisconsin sent prediction market platforms spinning last month when its election commission released a directive reminding voters that betting on elections — including via trades on event contract exchanges — is illegal in the state, based on a more than 175-year-old law. 

What shocked people was the penalty that Wisconsin places on those who break its law: violators lose the right to vote in the election they bet on. 

Prediction market platform Kalshi blasted the law. “This is blatantly unconstitutional and illegal,” Benjamin Freeman, head of politics growth at Kalshi, wrote in a post on X. Polymarket told the Milwaukee Journal Sentinel it looked forward to addressing the claims through the appropriate legal process. 

Wisconsin isn’t alone. Twenty-three states have laws on the books that ban betting on elections, according to Pew Research Center. New York also doesn’t allow voters to cast a ballot in an election that they’ve bet on, while in most of the other states violators can face fines or jail time for wagering on an election. 

However, does the language in state laws apply to trades placed on event contracts? The answer depends on the state, but many aren’t sure. 

Hotly contested

In Colorado, betting on an election is a class 2 misdemeanor punishable by up to 120 days in jail or a $750 fine. Lawrence Pacheco, a spokesman for the Colorado state attorney general, was clear in a statement: “Colorado state law bars bets or wagers on elections, and that includes prediction markets.”

But few states were as direct as Colorado. A spokesperson for the New York attorney general said that the office has not made an official interpretation on its election betting statute and whether it applies to prediction market trades. 

The office for the Arizona attorney general declined to comment on whether its law applies to election event contracts due to active litigation with prediction market platforms. Phil Bueler, a press secretary for the Tennessee attorney general, said that he cannot comment on what is essentially a request for a legal opinion about a “hotly contested issue.”

In March, the Maryland State Board of Elections in a memo to voters said that users should exercise caution when considering trading elections on prediction market platforms, warning that it could amount to violating the state’s law banning wagering on elections. Then, in July, the state’s administrator of elections Jared DeMarinis wrote a letter to the office of the state prosecutor to investigate whether prediction markets’ election offerings violate Maryland’s law.

“That’s why we did the March letter early,” DeMarinis said in an interview. “This is still in the early stages… and we need to make sure we seek clarity.” He added he is interested — if the current law is interpreted as not applying to prediction market trades — in seeking action from the state legislature to deliver that clarity. 

Meanwhile, Nevada bans betting on elections, but court rulings have forced Polymarket and Kalshi to cease operating in the state. Due to court orders in Michigan, which also bans election wagering, Kalshi is currently in a total operational shutdown in the state while Polymarket only blocks residents’ access to its sports-related event contracts.

A new battlefront

States are already fighting with the federal government over regulating prediction markets. The Commodity Futures Trading Commission sees all event contracts as swaps, a derivative that it regulates, and thus believes companies fall under its jurisdiction, preempting any state law. States see the platforms’ offering of sports event contracts as gambling, an activity that they regulate. 

However, elections may introduce a new line of defense for the states, according to legal experts. The U.S. Constitution explicitly gives the power of managing elections to the states, so they could argue in front of a court that power extends to regulating any form of placing money on said elections.

“I think the argument for the states having some place at the regulatory table with respect to elections is perhaps stronger from a preemption perspective,” said David Oliwenstein, a partner at Pillsbury and lead of the firm’s securities enforcement practice. “I think that the fact that the states have a clearly defined role… makes it a bit of an easier argument for the states to maintain jurisdiction.”

In 2024, a federal appeals court ruled that event contract platforms can feature election offerings. However, that decision overturned an intervention by the CFTC denying the listing of those contracts rather than offering a legal opinion on any state law regarding election wagering, though the commission used state laws on election bets as part of its reasoning for its denial at the time.

“States would have an argument that not only for local races but for even national races, where you have district level outcomes, state level outcomes, where there’s close elections, that there are a variety of collateral consequences to the the prospect of individuals betting on the outcomes of these races,” said Joshua Mitts, a professor at Columbia Law School. 

In its lawsuit against Kalshi, New York not only argues that the platform’s sports contracts violate state gambling laws, but also points out the company’s culture and elections event contracts. The spokesperson for the New York attorney general added that the office doesn’t have a particular view on its jurisdiction over election contracts specifically, but rather believes it has the power to regulate all gambling in any form. 

Even if states were to introduce this new argument in their battle with the federal government in courts, the CFTC’s argument likely would stay the same. That’s because no matter the topic on a prediction market, the underlying instrument — a swap — doesn’t change. 

Kalshi made that point in a statement to CNBC. “The law is clear — regulated prediction markets are subject to exclusive federal jurisdiction,” spokeswoman Elisabeth Diana said.

A Polymarket spokesperson echoed that sentiment. “As courts have recognized, prediction markets on CFTC-registered exchanges are governed by federal law, not a patchwork of state rules.”

The CFTC did not respond to a request for comment.

Ian Thomas, a principal attorney in the commercial litigation practice group at Offit Kurman, agreed with the other legal experts that states could take the position in court that the constitutional right to manage elections gives them power over prediction markets’ related event contracts.

However, with sports making up the majority of prediction market platforms’ volumes, he said it’s unlikely those contracts fade from the central arguments. 

“Sports is such a major aspect of these platforms that it really is where everyone’s primary focus is going to be,” Thomas said, “and I think once the question of sports gets resolved, it may lead to a more easy resolution of kind of where the boundaries are on these platforms on other topics.”

Disclosure: CNBC and Kalshi have a commercial relationship that includes customer acquisition and a minority investment.