Wisconsin Takes on Prediction Market Giants in Lawsuit

The prediction market industry has long maintained that its products are legitimate financial instruments, not mere bets. However, Wisconsin has taken a firm stance against this claim, filing a complaint against several major players, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. According to the state, these companies are operating unlicensed gambling venues, and their marketing tactics are proof of this. Attorney General Josh Kaul stated, "Thinly disguising unlawful conduct doesn't make it lawful." The lawsuit raises a crucial question: are these contracts financial instruments under the Commodity Futures Trading Commission (CFTC), or are they simply bets under state gambling law? This distinction will determine whether the prediction market operates under a single federal rulebook or is subject to the jurisdiction of local gaming regulators in each state. The case is likely to end up in the Supreme Court. Wisconsin's complaints target three separate ecosystems, naming Crypto.com, Polymarket, and Kalshi, alongside its distribution partners Robinhood and Coinbase. The state argues 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 platforms' own marketing materials, such as Kalshi's Instagram ads, which claim the platform is "The First Nationwide Legal Sports Betting Platform," and Polymarket's, which calls itself "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 emphasize that platforms generate revenue by charging transaction fees on each contract, likening the model 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. However, state courts have consistently taken a different position, with Nevada and New York both characterizing the contracts as indistinguishable from gambling. The Wisconsin lawsuit adds to a growing list of state challenges, building a record that could ultimately force the Supreme Court to decide whether calling something a financial contract is enough to keep it from being treated as a bet.