Wisconsin Takes on Prediction Market Giants in Lawsuit

The prediction market industry has long maintained that its products are legitimate financial instruments, but Wisconsin is disputing this claim. In a recent lawsuit, the state is targeting major players such as Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, citing their own marketing materials as evidence of unlawful gambling activities. According to Attorney General Josh Kaul, 'disguising illegal conduct does not make it legal.' The lawsuit raises a fundamental question: are these contracts legitimate financial instruments under the Commodity Futures Trading Commission (CFTC), or are they simply bets subject to state gambling laws? This question has significant implications, as it will determine whether the rapidly growing prediction market will be regulated at the federal level or fragmented across 50 states under local gaming laws. The case is likely to end up in the Supreme Court. Wisconsin's complaints, filed in Dane County, focus on three main areas. The first targets Crypto.com and its derivatives arm, while the second takes aim at Polymarket and its affiliated entities. The third complaint names Kalshi, along with distribution partners Robinhood and Coinbase, alleging that these platforms facilitate sports betting for state residents. The legal theory behind the complaints is that so-called 'event contracts' 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 state cites 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 Kalshi's Instagram ads, which claim the platform is 'The First Nationwide Legal Sports Betting Platform,' and Polymarket's ads, which describe 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 that platforms generate revenue by 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 across the US have consistently taken a different position, with Nevada and New York both characterizing the contracts as indistinguishable from gambling. Wisconsin's suits 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 exempt it from being treated as a bet.