Wisconsin Takes on Prediction Market Operators, Including Kalshi, Coinbase, and Crypto.com

The prediction market industry maintains that its offerings are legitimate financial instruments, but Wisconsin disagrees. In a recent complaint filed against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, the state argues that the companies' marketing materials reveal their true nature as unlicensed gaming operators. According to Wisconsin Attorney General Josh Kaul, 'masquerading as lawful conduct does not make it so.' The core issue at play is whether these contracts should be considered financial instruments under the purview of the Commodity Futures Trading Commission or bets subject to state gaming laws. This question has significant implications, as it will determine whether the burgeoning prediction market operates under a unified federal framework or is instead regulated by individual states. The matter is likely to end up before the Supreme Court. Wisconsin's complaints target three distinct ecosystems, naming Crypto.com, Polymarket, and Kalshi, as well as its distribution partners Robinhood and Coinbase. The state's legal argument is based on the premise that 'event contracts' are, in fact, wagers, where users pay to take a position on a real-world outcome and receive a payout if they are correct. The complaints cite examples of traders buying contracts tied to NCAA tournament games, with winning positions paying out a fixed amount and losing ones returning nothing. State prosecutors point to the platforms' own marketing materials, including 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.' The state argues that the structure of prediction markets aligns with its statutory definition of a bet, regardless of labeling or the counterparty to the trade. Furthermore, the complaints highlight that platforms generate revenue by charging transaction fees on each contract, drawing parallels with a casino taking a cut of wagers. 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 stance, with Nevada and New York characterizing the contracts as indistinguishable from gambling. The Wisconsin suits contribute to a growing list of state challenges, building a record that may ultimately prompt the Supreme Court to decide whether labeling something a financial contract is sufficient to distinguish it from a bet.