Wisconsin Takes on Prediction Markets, Files Lawsuits Against Multiple Companies

The prediction market industry has consistently maintained that its products are legitimate financial instruments, rather than mere bets. However, Wisconsin has taken a firm stance against this claim, filing a complaint against several major companies, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, alleging that they are operating as unlicensed gambling venues. According to Wisconsin Attorney General Josh Kaul, "attempting to disguise unlawful activities as legitimate ones does not make them lawful." The core issue at hand is whether these contracts should be classified as financial instruments under the Commodity Futures Trading Commission (CFTC) or as bets under state gambling laws. This distinction will determine whether the rapidly growing prediction market will be subject to a single federal regulatory framework or will be divided across 50 states, with each state's gaming regulators having jurisdiction. The case is likely to eventually make its way to the Supreme Court. Wisconsin's complaints, filed in Dane County, target three separate ecosystems: one involving Crypto.com and its derivatives arm, another involving Polymarket and its affiliated entities, and a third involving Kalshi and its distribution partners, Robinhood and Coinbase. The state's legal argument is that so-called "event contracts" are, in essence, 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 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 companies' own marketing materials, such as Kalshi's Instagram ads claiming to be "The First Nationwide Legal Sports Betting Platform" and Polymarket's ads describing itself as "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 definition of a bet, regardless of how the products are labeled or who takes the other side of the trade. The complaints also highlight 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. Wisconsin's suits add to a growing list of state challenges, each building a record that could ultimately force the Supreme Court to decide whether labeling something a financial contract is enough to keep it from being treated as a bet.