Wisconsin Takes on Prediction Market Platforms in Lawsuit Against Kalshi, Coinbase, and Others

The prediction market industry consistently maintains that its offerings are financial instruments, not wagers. However, Wisconsin disagrees and has filed a complaint against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, citing the companies' marketing materials as evidence of their gambling nature. According to Wisconsin Attorney General Josh Kaul, 'disguising unlawful activities does not make them lawful.' The core issue at stake is whether these contracts are financial instruments under the Commodity Futures Trading Commission or bets under state law. This distinction determines whether the market operates under federal regulations or state gaming laws. The case 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 partners Robinhood and Coinbase. The state argues that 'event contracts' 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 also highlight the platforms' revenue models, which involve 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 under the CFTC's jurisdiction. However, state courts have consistently taken a different stance, with Nevada and New York characterizing the contracts as indistinguishable from gambling. Wisconsin's suits contribute to a growing list of state challenges that may ultimately prompt the Supreme Court to decide whether labeling something a financial contract is sufficient to distinguish it from a bet.