Wisconsin Takes on Prediction Market Operators in Lawsuit

The prediction market industry has consistently maintained that its offerings are legitimate financial instruments, rather than mere bets. However, Wisconsin has rejected this notion and filed a complaint against several prominent operators, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, citing their own marketing materials as evidence of unlawful gambling activities. According to Wisconsin Attorney General Josh Kaul, 'attempting to disguise illegal conduct with clever language does not make it lawful'. The core issue at stake is whether these contracts should be classified as financial instruments under the Commodity Futures Trading Commission (CFTC) or as bets subject to state gaming regulations. This question has significant implications, as it will determine whether the rapidly expanding prediction market will be governed by a single federal regulatory framework or will be subject to a patchwork of state laws. The matter is likely to be ultimately decided by the Supreme Court. Wisconsin's complaints, which were filed in Dane County, target three distinct ecosystems. One complaint names Crypto.com and its derivatives arm, while another targets Polymarket and its affiliated entities. A third complaint names Kalshi and its distribution partners, Robinhood and Coinbase, alleging that these platforms collectively facilitate sports betting for Wisconsin residents. The state's legal theory is that so-called 'event contracts' are, in effect, 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, where winning positions pay out $1 and losing ones return nothing. State prosecutors also point to the platforms' own marketing materials, such as Kalshi's Instagram ads, which describe the platform as 'The First Nationwide Legal Sports Betting Platform', and Polymarket's ads, which describe it as 'a platform where people can bet on the outcome of future events'. The state argues that the structure of prediction markets falls squarely within its statutory definition of a bet, regardless of how the products are labeled or who takes the other side of the trade. The complaints also highlight that the 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 and therefore fall under the CFTC's exclusive jurisdiction. This position received a boost when the Third Circuit recently sided with the company, treating the regulator's decision not to block the contracts as effectively settling the jurisdictional question. However, state courts across the US have consistently taken a different view, with Nevada describing the contracts as 'indistinguishable' from gambling and New York AG Letitia James stating that 'each contract is a bet'. For now, Wisconsin's lawsuits add to a growing list of state challenges, each building a record that could ultimately force the Supreme Court to decide whether labeling something a financial contract is enough to shield it from being treated as a bet.