Wisconsin Takes On Prediction Markets, Files Lawsuits Against Multiple Companies

The prediction market sector has consistently claimed that its products are legitimate financial instruments, rather than mere bets. However, Wisconsin has expressed skepticism and has now filed a complaint against several notable companies, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, citing their marketing materials as evidence of unlicensed gambling operations. According to Wisconsin Attorney General Josh Kaul, 'merely disguising unlawful activities does not render them lawful.' The core issue at stake is whether these contracts constitute financial instruments under the Commodity Futures Trading Commission or bets under state law, a question that may ultimately be decided by the Supreme Court. Wisconsin's complaints target three distinct ecosystems, naming Crypto.com, Polymarket, and Kalshi, along with its partners Robinhood and Coinbase, alleging that they facilitate sports betting for state residents. The state's legal argument is that so-called 'event contracts' are, in fact, wagers, where users pay to take a position on a real-world outcome and receive a payout if they are correct. Examples cited in the filings include traders buying contracts tied to NCAA tournament games, with winning positions paying out $1 and losing ones returning nothing. The state also references Kalshi's Instagram ads, which describe the platform as 'The First Nationwide Legal Sports Betting Platform,' and Polymarket's ads, which describe itself as 'a platform where people can bet on the outcome of future events.' Wisconsin argues that the structure of prediction markets aligns with its statutory definition of a bet, regardless of labeling or who takes the opposing side of the trade. The complaints also highlight that platforms generate revenue by charging transaction fees, similar to a casino taking a cut of wagers. The industry's defense relies on federal preemption, with Kalshi arguing that its contracts are swaps listed on a regulated exchange, falling under the CFTC's exclusive jurisdiction. However, state courts have consistently taken a different stance, with Nevada and New York characterizing the contracts as indistinguishable from gambling. Wisconsin's suits contribute to a growing list of state challenges, which may ultimately prompt the Supreme Court to decide whether labeling something a financial contract is sufficient to distinguish it from a bet.