Wisconsin Takes on Prediction Markets, Sues Multiple Companies

The prediction market industry consistently claims that its products are legitimate financial instruments, but Wisconsin is challenging this notion. In a recent complaint filed against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, the state asserts that these companies are operating unlicensed gambling venues, using their own marketing materials as evidence. According to Attorney General Josh Kaul, 'attempting to disguise illegal activities does not make them lawful.' The core issue at hand is whether these contracts should be considered financial instruments under the Commodity Futures Trading Commission (CFTC) or bets subject to state gambling laws. This distinction will determine whether the market operates under a single federal rulebook or is regulated by individual states. The case is likely to end up in the Supreme Court. Wisconsin's complaints target three separate ecosystems, including Crypto.com, Polymarket, and Kalshi, as well as its distribution partners Robinhood and Coinbase. The state argues that the 'event contracts' offered by these platforms are essentially 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 platforms' own advertising, such as Kalshi's claim to be 'The First Nationwide Legal Sports Betting Platform' and Polymarket's description as 'a platform where people can bet on the outcome of future events.' The industry's defense relies on federal preemption, with Kalshi arguing that its contracts are regulated swaps that fall under the CFTC's exclusive jurisdiction. However, state courts have consistently taken a different stance, with Nevada and New York both characterizing the contracts as indistinguishable from gambling. Wisconsin's suits add to the growing list of state challenges, which may ultimately lead to a Supreme Court decision on whether labeling something a financial contract is enough to exempt it from being treated as a bet.