Wisconsin Takes on Prediction Markets, Files Lawsuits Against Multiple Companies

The prediction market industry consistently claims that its products are legitimate financial instruments, not mere bets. However, Wisconsin disagrees and has filed lawsuits against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, citing their own marketing materials as evidence of unlicensed gambling operations. According to Attorney General Josh Kaul, 'Disguising unlawful activities as something else does not make them lawful.' The core issue is whether these contracts are financial instruments under the Commodity Futures Trading Commission or bets under state law. This question has significant implications, as it will determine whether the market operates under federal regulations or is subject to individual state gaming laws. The lawsuits, filed in Dane County, target three distinct ecosystems: one involving Crypto.com, another involving Polymarket, and a third involving Kalshi and its partners, Robinhood and Coinbase. The state argues that 'event contracts' are, in fact, 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, such as traders buying contracts tied to NCAA tournament games, and highlight the platforms' own advertising, which appears to acknowledge that they facilitate betting. The state maintains that the structure of prediction markets falls within its definition of a bet, regardless of labeling or who takes the opposing side of the trade. The industry's defense relies on federal preemption, with Kalshi arguing that its contracts are regulated swaps. However, state courts have consistently taken a different stance, with Nevada and New York characterizing the contracts as indistinguishable from gambling. The Wisconsin lawsuits contribute to a growing list of state challenges, which may ultimately lead the Supreme Court to decide whether labeling something a financial contract is sufficient to distinguish it from a bet.