Wisconsin Takes Legal Action Against Multiple Companies Over Prediction Market Activities

The prediction market industry maintains that its offerings are legitimate financial instruments, not wagers. However, Wisconsin has taken a different stance, filing complaints against companies such as Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. According to Wisconsin's Attorney General Josh Kaul, 'disguising unlawful activities does not make them lawful.' The core issue revolves around whether these platforms' 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 industry operates under a unified federal regulatory framework or is subject to individual state regulations. The matter is likely to be resolved by the Supreme Court. Wisconsin's complaints target three distinct ecosystems, naming Crypto.com, Polymarket, and Kalshi, along with its distribution partners Robinhood and Coinbase. The lawsuits argue that these platforms facilitate sports betting for state residents through 'event contracts,' which are essentially wagers on real-world outcomes. The state points to the companies' own marketing materials, 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.' The structure of these prediction markets, according to the state, falls within its definition of a bet, regardless of the labeling or the counterparty involved. Furthermore, the platforms generate revenue through transaction fees, similar to a casino's model. The industry's defense relies on federal preemption, with Kalshi arguing that its contracts are regulated swaps under the CFTC's jurisdiction. This position was recently supported by the Third Circuit, which treated the regulator's decision not to block the contracts as a de facto settlement of the jurisdictional issue. Nevertheless, state courts across the U.S. have consistently taken a different stance, with Nevada and New York characterizing the contracts as indistinguishable from gambling. Wisconsin's suits contribute to the growing list of state challenges, building a record that may ultimately lead the Supreme Court to decide whether the labeling of a financial contract is sufficient to distinguish it from a bet.