Wisconsin Takes on Prediction Markets, Files Lawsuits Against Kalshi, Coinbase, and Others

The prediction market industry has consistently maintained that its products are financial instruments, not bets. However, Wisconsin is challenging this claim, and in a recent complaint, the state is targeting Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, citing their own marketing materials as evidence of unlicensed gambling operations. Wisconsin's Attorney General, Josh Kaul, stated that 'disguising unlawful conduct does not make it lawful.' The lawsuits raise a fundamental question: are these contracts financial instruments under the Commodity Futures Trading Commission, or are they bets subject to state gambling laws? This issue is likely to be decided by the Supreme Court. Wisconsin's complaints, filed in Dane County, target three separate ecosystems, including Crypto.com, Polymarket, and Kalshi, along with its distribution partners Robinhood and Coinbase. The state argues that the so-called 'event contracts' offered by these platforms 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 state also cites the platforms' own advertising, such as Kalshi's claim to be 'The First Nationwide Legal Sports Betting Platform,' as evidence of their true nature. 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 characterizing the contracts as 'indistinguishable' from gambling and 'bets,' respectively. Wisconsin's lawsuits add to a growing list of state challenges, which may ultimately require the Supreme Court to decide whether labeling something a financial contract is sufficient to exempt it from being treated as a bet.