Wisconsin Takes on Prediction Market Giants in Lawsuit

The state of Wisconsin has launched a lawsuit against several prominent prediction market platforms, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, alleging that they are operating as unlicensed gambling venues. At the heart of the complaint is the question of whether the contracts offered by these platforms constitute financial instruments or simply bets. According to Wisconsin's Attorney General Josh Kaul, the platforms' attempts to disguise their activities as lawful financial transactions are unconvincing. The lawsuit targets three distinct ecosystems, each involving a different set of defendants, and argues that the so-called 'event contracts' offered by these platforms are, in reality, wagers that fall under state gambling laws. The state's complaint highlights the platforms' own marketing materials, which appear to concede that they are facilitating betting activities. For instance, Kalshi's Instagram ads describe the platform as 'The First Nationwide Legal Sports Betting Platform,' while Polymarket's ads refer to it as 'a platform where people can bet on the outcome of future events.' The lawsuit also emphasizes that the platforms generate revenue by charging transaction fees, similar to a casino taking a cut of wagers. The industry's defense relies on the argument that their contracts are swaps listed on a regulated exchange and therefore fall under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC). However, state courts have consistently taken a different view, with Nevada and New York both characterizing the contracts as indistinguishable from gambling. The Wisconsin lawsuit is likely to contribute to a growing body of case law that may ultimately require the Supreme Court to decide whether the labeling of a financial product is sufficient to exempt it from being treated as a bet.