Wisconsin Takes on Prediction Market Giants in Lawsuit

The prediction market industry has long maintained that its products are legitimate financial instruments, not mere bets. However, Wisconsin has taken a firm stance against this claim, filing a complaint against major players Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. According to Wisconsin Attorney General Josh Kaul, 'disguising unlawful conduct as lawful does not make it so.' The lawsuit centers on the question of whether these contracts fall under the purview of the Commodity Futures Trading Commission (CFTC) or are subject to state gambling laws. This debate is likely to be decided by the Supreme Court. Wisconsin's complaint targets three main ecosystems, including Crypto.com and its derivatives arm, Polymarket and its affiliates, and Kalshi, alongside distribution partners Robinhood and Coinbase. The state alleges that the so-called 'event contracts' offered by these platforms are, in reality, wagers, where users pay to take a position on a real-world outcome and receive a fixed payout if they are correct. The complaint cites examples of traders buying contracts tied to NCAA tournament games, with winning positions paying out $1 and losing ones returning nothing. Furthermore, state prosecutors point to the platforms' own marketing materials, such as Kalshi's Instagram ads claiming to be 'The First Nationwide Legal Sports Betting Platform,' and Polymarket's ads describing itself as 'a platform where people can bet on the outcome of future events.' The state argues that the structure of these prediction markets falls squarely within its definition of a bet, regardless of how the products are labeled. The complaint also highlights the revenue model of these platforms, which generate revenue by charging transaction fees on each contract, 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 and therefore fall under the CFTC's exclusive jurisdiction. However, state courts have consistently taken a different stance, with Nevada and New York both characterizing these contracts as indistinguishable from gambling. Wisconsin's lawsuit adds to the growing list of state challenges, building a record that may ultimately force the Supreme Court to decide whether labeling something a financial contract is enough to exempt it from being treated as a bet.