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

The prediction market industry has consistently maintained that its products are legitimate financial instruments, not gambling bets. However, Wisconsin is challenging this claim, and in a recent complaint filed against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, the state is using the companies' own marketing materials to argue that they are operating as unlicensed gambling venues. According to Attorney General Josh Kaul, 'disguising unlawful conduct does not make it lawful.' The core issue at stake is whether these platforms are offering financial instruments under the jurisdiction of the Commodity Futures Trading Commission (CFTC) or if they are facilitating bets under state gambling laws. This distinction will determine whether the industry operates under a single federal rulebook or is subject to regulation by individual states. The matter is likely to end up in the Supreme Court. Wisconsin's complaints target three separate ecosystems, including Crypto.com, Polymarket, and Kalshi, along with its distribution partners Robinhood and Coinbase. The state's legal argument is that the 'event contracts' offered by these platforms are essentially wagers, where users pay to take a position on a real-world outcome and receive a 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 platforms' own marketing materials, such as Kalshi's claim to be '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 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, 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 position, with Nevada and New York characterizing the contracts as 'indistinguishable' from gambling and 'bets,' respectively. Wisconsin's suits add to the growing list of state challenges, building a record that could ultimately lead the Supreme Court to decide whether labeling something a financial contract is enough to distinguish it from a bet.