Wisconsin Takes on Prediction Market Operators, Alleging Unlicensed Gambling

The prediction market industry has long maintained that its products are legitimate financial instruments, rather than bets. However, Wisconsin has taken a different stance, filing a lawsuit against several major players, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, alleging that they are operating as unlicensed gambling venues. According to Attorney General Josh Kaul, 'merely disguising illegal activities does not make them lawful'. The lawsuit raises a fundamental question: do these contracts constitute financial instruments under the Commodity Futures Trading Commission (CFTC), or are they simply bets subject to state gambling laws? The answer to this question will determine whether the rapidly growing prediction market will be regulated by a single federal rulebook or fragmented across 50 states, with each state's gaming regulators having jurisdiction. This issue is likely to be decided by the Supreme Court. Wisconsin's lawsuit targets three separate ecosystems, naming 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 reality, 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, including Kalshi's Instagram ads, which describe the platform as 'The First Nationwide Legal Sports Betting Platform', and Polymarket's, which calls itself '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 statutory definition of a bet, regardless of how the products are labeled or who takes the other side of the trade. The lawsuit also highlights that the 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 the growing list of state challenges, building a record that may ultimately force the Supreme Court to decide whether labeling something a financial contract is enough to exempt it from being treated as a bet.