Wisconsin Takes on Prediction Markets, Sues Multiple Companies for Unlicensed Gambling

The prediction market industry has consistently maintained that its products are legitimate financial tools, not wagers. However, Wisconsin has expressed its skepticism and filed a lawsuit against several major players, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, citing their marketing language as evidence of unlicensed gambling operations. According to Attorney General Josh Kaul, 'merely disguising unlawful activities does not make them lawful.' The lawsuit centers on the question of whether these platforms offer financial instruments under the Commodity Futures Trading Commission (CFTC) or bets under state law, which would determine whether they operate under federal or state regulations. This issue is likely to be decided by the Supreme Court. Wisconsin's complaints target three main platforms, arguing that their 'event contracts' are essentially wagers where users pay to predict real-world outcomes and receive payouts if correct. The state points to the companies' own advertising, such as Kalshi's claim of being 'the first nationwide legal sports betting platform' and Polymarket's description as a platform for betting on future events. The lawsuit also highlights the revenue model of these platforms, which charge 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 under the CFTC's jurisdiction. However, state courts have consistently taken a different stance, with Nevada and New York comparing these contracts to gambling. Wisconsin's lawsuit adds to the growing list of state challenges, which may ultimately lead to a Supreme Court decision on whether labeling something as a financial contract is sufficient to distinguish it from a bet.