Wisconsin Takes on Prediction Market Giants in Lawsuit

The prediction market industry has consistently claimed that its products are legitimate financial instruments, not mere bets. However, Wisconsin has taken a firm stance against this notion, filing a complaint against several major players, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. According to the state, these companies are essentially operating unlicensed gambling venues, using language that disguises their true nature. Attorney General Josh Kaul emphasized that 'thinly disguising unlawful conduct doesn't make it lawful.' The core issue at hand is whether these contracts should be considered financial instruments under the Commodity Futures Trading Commission (CFTC) or bets under state gambling law. This distinction will determine whether the market operates under a single federal rulebook or is regulated by individual states. 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. The state argues 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 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.' The state contends that the structure of these prediction markets falls within its statutory definition of a bet, regardless of how the products are labeled. 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. 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 treating the contracts as indistinguishable from gambling. Wisconsin's suits 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.