Wisconsin Takes on Prediction Market Platforms, Files Lawsuits Against Kalshi, Coinbase, and Others

The prediction market industry has consistently maintained that its offerings are legitimate financial instruments, not gambling bets. However, Wisconsin has expressed skepticism towards this claim, and in a recent lawsuit, the state is targeting Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, citing their own marketing materials as evidence of unlawful gambling activities. According to Wisconsin Attorney General Josh Kaul, 'merely disguising illegal conduct does not make it lawful.' The lawsuit raises a fundamental question: do these contracts qualify as financial instruments under the Commodity Futures Trading Commission (CFTC), or are they essentially bets subject to state gaming regulations? This question is likely to be resolved by the Supreme Court. Wisconsin's complaints, filed in Dane County, focus on three separate ecosystems, including Crypto.com, Polymarket, and Kalshi, which partners with Robinhood and Coinbase to facilitate sports betting for Wisconsin residents. The state argues that the so-called 'event contracts' offered by these platforms are, in fact, wagers, where users pay to take a position on a real-world outcome and receive a fixed payout if they are correct. The complaints cite examples of traders buying contracts tied to NCAA tournament games, with winning positions paying out $1 and losing ones returning nothing. State prosecutors also point to the platforms' own advertising, such as Kalshi's claim to be 'The First Nationwide Legal Sports Betting Platform,' and Polymarket's description of itself as 'a platform where people can bet on the outcome of future events.' The state contends that the structure of prediction markets falls within its statutory definition of a bet, regardless of labeling or the counterparty to the trade. The complaints also highlight that the platforms 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, thereby 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 and 'bets,' respectively. The Wisconsin lawsuits 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.