Wisconsin Takes on Prediction Market Operators, Including Kalshi, Coinbase, and Robinhood, Over Alleged Unlicensed Gambling

The prediction market industry maintains that its products are legitimate financial tools, not wagers. However, Wisconsin has filed a complaint against several major players, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, alleging that they are operating unlicensed gambling venues in the state. According to Wisconsin Attorney General Josh Kaul, 'merely disguising unlawful activities does not make them lawful.' The core issue at hand is whether these platforms offer financial instruments subject to federal regulation or bets governed by state law. This distinction will determine whether the industry operates under a unified federal framework or is regulated by individual states. The case is likely to ultimately be decided by the Supreme Court. Wisconsin's complaints target three main groups: Crypto.com and its derivatives arm, Polymarket and its affiliates, and Kalshi, along with its distribution partners Robinhood and Coinbase. The state argues that the 'event contracts' offered by these platforms constitute wagers, where users pay to take a position on a real-world outcome and receive a fixed payout if they are correct. For example, traders could buy 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 of itself as 'a platform where people can bet on the outcome of future events.' Wisconsin 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 these 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 regulated swaps and therefore fall under the exclusive jurisdiction of the Commodity Futures Trading Commission. However, state courts have consistently taken a different stance, with Nevada and New York characterizing these contracts as indistinguishable from gambling. The Wisconsin suits add to the growing list of state challenges, which may ultimately force the Supreme Court to decide whether labeling something a financial contract is sufficient to exempt it from being treated as a bet.