Wisconsin Takes on Prediction Market Operators in Lawsuit

The prediction market industry has consistently maintained that its products are legitimate financial instruments, rather than mere bets. However, Wisconsin is challenging this claim, filing a complaint against several major operators, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. The state's lawsuit centers on the question of whether these platforms' contracts constitute financial instruments under the Commodity Futures Trading Commission (CFTC) or if they are, in fact, bets subject to state gambling laws. This distinction is crucial, as it will determine whether the industry operates under a single federal regulatory framework or is instead subject to a patchwork of state laws. The issue is likely to ultimately be decided by the Supreme Court. Wisconsin's complaints, filed in Dane County, target three separate ecosystems: one involving Crypto.com and its derivatives arm, another involving Polymarket and its affiliates, and a third involving Kalshi and its distribution partners, Robinhood and Coinbase. The state's legal theory is 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 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. The state also points to the platforms' own marketing materials, including Kalshi's Instagram ads, which describe the platform as 'The First Nationwide Legal Sports Betting Platform,' and Polymarket's, which calls itself 'a platform where people can bet on the outcome of future events.' The state argues that the structure of prediction markets falls squarely within its statutory definition of a bet, regardless of how the products are labeled or who takes the other side of the trade. The complaints also emphasize that the platforms generate revenue by charging transaction fees on each contract, similar to a casino taking a cut of wagers placed on its floor. 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 position, with Nevada and New York both characterizing the contracts as 'indistinguishable' from gambling. Wisconsin's suits add to a growing list of state challenges, each building a record that could ultimately force the Supreme Court to decide whether calling something a financial contract is enough to keep it from being treated as a bet.