Wisconsin Takes on Prediction Market Giants in Lawsuit

The prediction market industry maintains that its products are legitimate financial instruments, but Wisconsin is disputing this claim. In a recent lawsuit filed against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, the state argues that these platforms are actually unlicensed gambling operators. According to Wisconsin Attorney General Josh Kaul, 'disguising unlawful activities as lawful ones does not make them so.' The core issue at stake is whether these platforms offer financial instruments regulated by the Commodity Futures Trading Commission (CFTC) or if they are simply bets subject to state gambling laws. This distinction will determine whether the industry operates under a single federal regulatory framework or is subject to varying state laws. The lawsuit, which is likely to end up in the Supreme Court, targets three main platforms: Crypto.com, Polymarket, and Kalshi, along with its distribution partners Robinhood and Coinbase. Wisconsin's complaint asserts 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 state cites examples of traders buying contracts tied to NCAA tournament games, with winning positions paying out $1 and losing ones returning nothing. The lawsuit also references Kalshi's Instagram ads, which describe the platform as 'The First Nationwide Legal Sports Betting Platform,' and Polymarket's ads, which call it 'a platform where people can bet on the outcome of future events.' Wisconsin argues that the structure of these prediction markets falls within its statutory definition of a bet, regardless of how the products are labeled. The state also notes that these platforms generate revenue by charging 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 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 these contracts as indistinguishable from gambling. Wisconsin's lawsuit adds to the growing list of state challenges, which may ultimately force the Supreme Court to decide whether labeling something a financial contract is enough to distinguish it from a bet.