Wisconsin Takes on Prediction Markets, Sues Multiple Companies Over Alleged Unlicensed Gambling

The state of Wisconsin has launched a lawsuit against several companies, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, alleging that their prediction market platforms are essentially unlicensed gambling venues. At the heart of the issue is whether the contracts offered by these platforms constitute financial instruments or bets. According to Wisconsin's Attorney General Josh Kaul, 'Disguising unlawful conduct as something lawful does not make it legitimate.' The lawsuit targets three main groups: Crypto.com and its derivatives arm, Polymarket and its affiliated entities, and Kalshi along with its distribution partners Robinhood and Coinbase. The legal argument is that the 'event contracts' offered by these platforms 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 state cites examples where traders can buy contracts tied to events like NCAA tournament games, with winning positions paying out a fixed amount and losing ones returning nothing. The lawsuit also references 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.' Wisconsin argues that the structure of these prediction markets fits within its statutory definition of a bet, regardless of the labeling or the counterparty involved. Furthermore, the state points out that these platforms generate revenue by charging transaction fees, similar to a casino taking a cut of wagers. The industry's defense is based on federal preemption, with Kalshi arguing that its contracts are regulated swaps under the Commodity Futures Trading Commission's jurisdiction. However, state courts have consistently taken a different stance, with Nevada and New York viewing these contracts as indistinguishable from gambling. The Wisconsin lawsuit is the latest in a series of state challenges that may ultimately lead to a Supreme Court decision on whether labeling something as a financial contract is enough to distinguish it from a bet.