Wisconsin Takes on Prediction Markets, Files Lawsuits Against Multiple Companies

The prediction market industry has long maintained that its products are legitimate financial instruments, not mere bets. However, Wisconsin has taken a different stance, filing a complaint against several major companies, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, alleging that they are operating unlicensed gambling venues. According to Attorney General Josh Kaul, 'disguising unlawful conduct does not make it lawful.' The core issue at play is whether these contracts should be considered financial instruments under the Commodity Futures Trading Commission (CFTC) or bets under state gambling law. This distinction will determine whether the market operates under a single federal rulebook or is subject to the jurisdiction of local gaming regulators in each state. The answer to this question will likely be decided by the Supreme Court. Wisconsin's complaints target three separate ecosystems, naming Crypto.com, Polymarket, and Kalshi, alongside its distribution partners Robinhood and Coinbase. The state argues that the 'event contracts' offered by these platforms are essentially 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 companies' own marketing materials, such as Kalshi's Instagram ads claiming 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 how the products are labeled. 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 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 equivalent to gambling. Wisconsin's suits add 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 sufficient to distinguish it from a bet.