Wisconsin Takes on Prediction Market Giants in Lawsuit

The prediction market industry has consistently maintained that its products are legitimate financial instruments, rather than mere bets. However, Wisconsin has rejected this claim, filing a lawsuit against major players such as Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. The state's complaint centers on the language used by these platforms, which Wisconsin argues is more akin to gambling than investing. Attorney General Josh Kaul stated, "Disguising unlawful conduct as something else does not make it lawful." The lawsuit raises a fundamental question: are these contracts legitimate financial instruments under the purview of the Commodity Futures Trading Commission (CFTC), or are they simply bets subject to state gambling laws? This issue is likely to be resolved by the Supreme Court. Wisconsin's complaints target three separate ecosystems, including Crypto.com, Polymarket, and Kalshi, along with its 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 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 claim the platform is the "First Nationwide Legal Sports Betting Platform," and Polymarket's ads, which describe it as a platform for betting on future events. The state contends that the structure of prediction markets falls within its definition of a bet, regardless of how the products are labeled. The complaints also highlight that these platforms generate revenue by charging transaction fees, similar to a casino taking a cut of wagers. The industry's defense relies on federal preemption, with Kalshi arguing that its contracts are regulated swaps under the CFTC's jurisdiction. However, state courts have consistently taken a different stance, with Nevada and New York characterizing the contracts as indistinguishable from gambling. Wisconsin's lawsuit adds to the growing list of state challenges, which may ultimately lead to a Supreme Court decision on whether labeling something a financial contract is sufficient to distinguish it from a bet.