Wisconsin Takes on Prediction Market Giants in Lawsuit

The state of Wisconsin has filed a complaint against several prominent prediction market platforms, alleging that they are engaging in unlicensed gambling activities. The lawsuit targets Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, and challenges the notion that their products are legitimate financial instruments. According to the complaint, the platforms' marketing materials reveal that they are, in fact, facilitating bets, not investments. Wisconsin's Attorney General, Josh Kaul, emphasized that attempting to disguise unlawful conduct as lawful does not make it so. The lawsuit centers on the question of whether the contracts offered by these platforms constitute financial instruments or bets under state law. If deemed bets, the platforms would be required to operate under the jurisdiction of local gaming regulators, rather than a single federal rulebook. The complaint highlights the platforms' own marketing language, which appears to concede that they are, indeed, facilitating gambling activities. For instance, Kalshi's Instagram ads describe the platform as the 'First Nationwide Legal Sports Betting Platform,' while Polymarket's ads refer to it as a platform where users can 'bet on the outcome of future events.' The state argues that the structure of these prediction markets aligns with its statutory definition of a bet, regardless of how the products are labeled. 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 regulated swaps, falling under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC). However, state courts have consistently taken a different stance, with Nevada and New York characterizing the contracts as indistinguishable from gambling. The Wisconsin lawsuit adds to the growing list of state challenges, which may ultimately lead to a Supreme Court decision on whether labeling something a financial contract is sufficient to distinguish it from a bet.