Wisconsin Takes on Prediction Markets with Lawsuits Against Kalshi, Coinbase, and Others

The prediction market industry has consistently maintained that its offerings are legitimate financial instruments, not bets. However, Wisconsin has taken a different stance, filing complaints against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, citing their own marketing materials as evidence of unlawful gambling activity. According to Wisconsin Attorney General Josh Kaul, 'merely disguising illegal conduct does not make it lawful.' The core issue at play is whether these platforms' contracts should be classified as financial instruments under the purview of the Commodity Futures Trading Commission (CFTC) or as bets subject to state gaming laws. This question is likely to be ultimately decided by the Supreme Court. Wisconsin's complaints target three separate ecosystems: one involving Crypto.com and its derivatives arm, another involving Polymarket and its affiliates, and a third involving Kalshi and its distribution partners Robinhood and Coinbase. The state's legal theory is that the 'event contracts' offered by these platforms are, in fact, wagers, with users paying to take a position on a real-world outcome and receiving 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. State prosecutors also point to the platforms' own advertising, such as Kalshi's claim to be 'The First Nationwide Legal Sports Betting Platform' and Polymarket's description of itself as 'a platform where people can bet on the outcome of future events.' The state argues that the structure of prediction markets falls 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 highlight the revenue model used by these platforms, which involves 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 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. Wisconsin's lawsuits add to the growing list of state challenges, building a record that could ultimately force the Supreme Court to decide whether labeling something a financial contract is enough to keep it from being treated as a bet.