Wisconsin Takes on Prediction Market Giants in Lawsuit

The state of Wisconsin has launched a lawsuit against several major players in the prediction market space, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. At the heart of the complaint is the question of whether the contracts offered by these platforms constitute financial instruments or simply bets. According to Wisconsin, the language used by these companies in their marketing materials suggests the latter, with the state's Attorney General Josh Kaul arguing that 'thinly disguising unlawful conduct doesn't make it lawful.' The lawsuit targets three main groups: Crypto.com and its derivatives arm, Polymarket and its affiliates, and Kalshi, along with 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 money to take a position on a real-world outcome and receiving a fixed payout if they are correct. Wisconsin's 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 companies' 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 lawsuit emphasizes that the structure of prediction markets falls within Wisconsin's statutory definition of a bet, regardless of how the products are labeled or who takes the other side of the trade. The companies generate revenue by charging transaction fees on each contract, a model the state likens 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 exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC). 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, which 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.