Wisconsin Takes on Prediction Market Giants in Lawsuit

The prediction market industry has long maintained that its products are legitimate financial tools, not mere bets. However, Wisconsin has taken a firm stance against this claim, filing a lawsuit against major players such as Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. The state's complaint centers on the language used by these platforms, arguing that it constitutes gambling, not investing. According to Wisconsin Attorney General Josh Kaul, 'merely disguising illicit activities does not make them lawful.' The lawsuit raises a crucial question: do these contracts fall under the purview of the Commodity Futures Trading Commission (CFTC) as financial instruments, or are they simply bets subject to state gaming regulations? This issue is likely to be decided by the Supreme Court. Wisconsin's complaints, filed in Dane County, target three distinct ecosystems, including Crypto.com, Polymarket, and Kalshi, along with its 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 platforms' own marketing materials, such as Kalshi's Instagram ads, which claim to offer 'The First Nationwide Legal Sports Betting Platform,' and Polymarket's ads, which describe the platform as a place where people can 'bet on the outcome of future events.' Wisconsin argues that the structure of prediction markets falls squarely within its definition of a bet, regardless of how the products are labeled. The complaints also highlight the revenue model of these platforms, which involves 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 both characterizing these contracts as indistinguishable from gambling. Wisconsin's lawsuit adds 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 sufficient to distinguish it from a bet.