Wisconsin Takes on Prediction Markets, Files Lawsuits Against Multiple Companies

The prediction market industry has long maintained that its products are legitimate financial tools, not mere bets. However, Wisconsin has taken a different stance, filing a complaint against several companies, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, alleging that they are operating unlicensed gambling venues. According to Wisconsin Attorney General Josh Kaul, 'disguising unlawful conduct as something else does not make it lawful.' The lawsuit centers on the question of whether these platforms are offering financial instruments regulated by the Commodity Futures Trading Commission (CFTC) or if they are facilitating bets that fall under state gambling laws. This distinction is crucial, as it will determine whether the industry operates under a single federal regulatory framework or is subject to individual state laws. The case is likely to end up in the Supreme Court. Wisconsin's complaints target three separate ecosystems, naming Crypto.com, Polymarket, and Kalshi, along with its distribution partners Robinhood and Coinbase, and argue that these platforms are facilitating sports betting for state residents. The state's legal theory is that 'event contracts' offered by these platforms 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. The state also points 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 description of itself as 'a platform where people can bet on the outcome of future events.' Wisconsin 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 complaints also highlight that these 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 these contracts as indistinguishable from gambling. Wisconsin's lawsuits add 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 keep it from being treated as a bet.