Wisconsin Takes on Prediction Market Giants in Lawsuit

The state of Wisconsin has filed a complaint against several major players in the prediction market, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, alleging that they are operating as unlicensed gambling venues. According to the complaint, the companies' marketing materials reveal that their products are, in fact, bets rather than financial instruments. Wisconsin's Attorney General, Josh Kaul, stated that 'disguising unlawful conduct does not make it lawful.' The lawsuit centers on the question of whether the contracts offered by these platforms are financial instruments under federal law or bets under state law. This distinction determines whether the prediction market will be regulated by a single federal authority or 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, which partners with Robinhood and Coinbase to facilitate sports betting for state residents. 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 payout if they are correct. The complaints cite examples of traders buying contracts tied to NCAA tournament games, as well as the platforms' own marketing materials, which describe their products as betting platforms. The state contends that the structure of prediction markets falls within its definition of a bet, regardless of how the products are labeled. The industry's defense relies on federal preemption, with Kalshi arguing that its contracts are regulated by the Commodity Futures Trading Commission (CFTC). However, state courts have consistently taken a different position, with Nevada and New York characterizing the contracts as 'indistinguishable' from gambling and 'bets,' respectively. Wisconsin's lawsuit adds to the growing list of state challenges, which may ultimately lead to a Supreme Court decision on whether labeling a product as a financial contract is sufficient to exempt it from being treated as a bet.