Wisconsin Takes on Prediction Market Giants with Lawsuits Against Kalshi, Coinbase, and Others

The prediction market industry has long maintained that its products are legitimate financial instruments, not mere bets. However, Wisconsin has taken a firm stance against this claim, filing complaints against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. At the heart of the issue lies a fundamental question: do these platforms offer financial contracts under the purview of the Commodity Futures Trading Commission (CFTC), or are they essentially betting operations subject to state gambling laws? This dilemma may ultimately require a Supreme Court ruling to resolve. Wisconsin's complaints, filed in Dane County, target multiple entities, including Crypto.com's derivatives arm, Polymarket, and Kalshi, along with its distribution partners Robinhood and Coinbase. The state's argument is that the so-called '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. Wisconsin also points to the platforms' own marketing materials, such as Kalshi's Instagram ads claiming 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.' The state contends that the structure of prediction markets falls squarely within its statutory definition of a bet, regardless of labeling or the counterparty to the trade. Furthermore, the complaints highlight that these platforms generate revenue by charging transaction fees on each contract, similar to a casino taking a cut of wagers placed on its floor. The industry's defense relies on federal preemption, with Kalshi arguing that its contracts are swaps listed on a regulated exchange, thus falling under the CFTC's exclusive jurisdiction. This position received support from the Third Circuit earlier this month. Nevertheless, state courts across the U.S. have consistently taken a different stance, with Nevada and New York characterizing these contracts as indistinguishable from gambling. Wisconsin's lawsuits contribute to a growing list of state challenges, which may eventually compel the Supreme Court to decide whether labeling something a financial contract is sufficient to exempt it from being treated as a bet.