Wisconsin Takes Legal Action Against Multiple Companies Over Prediction Market Activities

Prediction market operators consistently claim that their offerings are legitimate financial tools, not wagering bets. However, Wisconsin has taken a stance against this assertion, filing complaints against several prominent companies, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, citing their marketing language as evidence of illegal gambling activities. According to Wisconsin's Attorney General Josh Kaul, 'Disguising unlawful conduct does not make it legitimate.' The core issue revolves around whether these contracts should be classified as financial instruments under the Commodity Futures Trading Commission (CFTC) or as bets subject to state gambling laws. This distinction determines whether the growing prediction market will be regulated federally or by individual states, potentially leading to a Supreme Court decision. Wisconsin's complaints target three main groups: Crypto.com and its derivatives arm, Polymarket and affiliated entities, and Kalshi along with its distribution partners Robinhood and Coinbase. The state's argument is that 'event contracts' offered by these platforms are essentially wagers, where users pay to take a position on a real-world outcome and receive a payout if they are correct. Examples cited include contracts tied to NCAA tournament games, where winning positions pay out a fixed amount and losing ones return nothing. The state also points to the companies' own advertising, such as Kalshi's claim of being 'The First Nationwide Legal Sports Betting Platform' and Polymarket's description as 'a platform where people can bet on the outcome of future events.' Wisconsin argues that the structure of these prediction markets fits squarely within its definition of a bet, regardless of labeling or the counterparty to the trade. Moreover, the state notes that these platforms generate revenue by charging transaction fees, similar to a casino taking a cut of wagers. The industry defends its position by citing federal preemption, with Kalshi arguing that its contracts are regulated swaps under the CFTC's jurisdiction. However, state courts have generally taken a different stance, with Nevada and New York both characterizing these contracts as indistinguishable from gambling. Wisconsin's actions contribute to a growing list of state challenges that 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.