Wisconsin Takes on Prediction Markets, Files Lawsuits Against Multiple Companies

The prediction market industry has long maintained that its products are legitimate financial instruments, rather than mere bets. However, Wisconsin has taken a firm stance against this notion, filing a complaint against several prominent companies, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. According to the state's Attorney General, Josh Kaul, these companies are essentially operating as unlicensed gambling venues, disguising their unlawful conduct as legitimate financial activity. The core issue at hand is whether these contracts should be considered financial instruments under the purview of the Commodity Futures Trading Commission (CFTC), or if they constitute bets under state gaming laws. This distinction is crucial, as it will determine whether the industry operates under a single federal regulatory framework or is subject to a patchwork of state laws. The case is likely to ultimately be decided by the Supreme Court. Wisconsin's complaints target three distinct ecosystems, naming Crypto.com, Polymarket, and Kalshi, along with its distribution partners Robinhood and Coinbase. The state's legal theory 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. The state also points to the companies' own marketing materials, such as Kalshi's Instagram ads, which claim the platform is '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.' 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. Furthermore, the complaints emphasize 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 the concept of 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 position, with Nevada and New York both characterizing the contracts as indistinguishable from gambling. The Wisconsin 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 exempt it from being treated as a bet.