Wisconsin Takes on Prediction Market Operators, Alleging Unlicensed Gambling

The prediction market industry has long maintained that its products are legitimate financial instruments, not wagers. However, Wisconsin has taken a firm stance against this claim, filing a complaint against several major operators, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. The state's Attorney General, Josh Kaul, has stated that 'disguising unlawful conduct as lawful does not make it so.' The lawsuit centers on the question of whether these platforms are offering unlicensed gambling services or legitimate financial instruments. This distinction is crucial, as it determines whether the industry will be regulated at the federal or state level. The complaint highlights the use of language by these platforms that suggests they are facilitating sports betting, which is subject to state gaming regulations. 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.' Wisconsin's lawsuit argues that the structure of these platforms' 'event contracts' constitutes betting, regardless of how they are labeled. The state also notes that these platforms generate revenue by charging transaction fees, similar to a casino taking a cut of wagers. The industry's defense relies on federal preemption, with Kalshi arguing that its contracts are regulated by the Commodity Futures Trading Commission (CFTC). However, state courts have consistently taken a different view, with Nevada and New York both characterizing these contracts as indistinguishable from gambling. The outcome of Wisconsin's lawsuit may ultimately be decided by the Supreme Court, which will have to determine whether the prediction market industry is engaged in legitimate financial activities or unlicensed gambling.