Wisconsin Takes on Prediction Market Giants in Lawsuit

The prediction market industry has long claimed that its products are legitimate financial instruments, but Wisconsin is now challenging this assertion. In a lawsuit filed against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, the state argues that these platforms are actually operating as unlicensed gambling venues. According to Attorney General Josh Kaul, 'merely disguising unlawful activities does not make them lawful.' The lawsuit centers on the question of whether the contracts offered by these platforms are financial instruments regulated by the Commodity Futures Trading Commission (CFTC) or bets subject to state gambling laws. This distinction is crucial, as it will determine whether the prediction market industry is subject to a single federal regulatory framework or fragmented across 50 states under local gaming regulations. The case is likely to ultimately be decided by the Supreme Court. Wisconsin's complaints target three separate entities: Crypto.com and its derivatives arm, Polymarket and its affiliated entities, and Kalshi, along with its distribution partners Robinhood and Coinbase. The state's legal theory is 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 lawsuit cites 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 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 argues that the structure of prediction markets falls squarely within its definition of a bet, regardless of how the products are labeled or who takes the other side of the trade. The complaints also highlight the fact that these 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. The Wisconsin lawsuit adds to a growing list of state challenges, which may ultimately force the Supreme Court to decide whether labeling a product as a financial contract is sufficient to exempt it from being treated as a bet.