Wisconsin Takes on Prediction Market Platforms in Lawsuit Against Kalshi, Coinbase, and Others

Prediction market operators have long maintained that their products are legitimate financial tools, not wagers. However, Wisconsin has filed a complaint against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, arguing that the companies' marketing materials reveal their true nature as unlicensed gambling venues. According to Wisconsin Attorney General Josh Kaul, 'attempting to disguise unlawful activities does not make them lawful.' The lawsuit centers on the question of whether these contracts are financial instruments regulated by the Commodity Futures Trading Commission (CFTC) or bets subject to state gaming laws. This issue is likely to be decided by the Supreme Court. Wisconsin's complaints target three separate ecosystems, including Crypto.com, Polymarket, and Kalshi, which partners with Robinhood and Coinbase to offer sports betting to state residents. The state argues that 'event contracts' are essentially wagers, where users pay to take a position on a real-world outcome and receive a payout if they are correct. The complaints cite the platforms' own marketing materials, including Kalshi's claim to be 'the first nationwide legal sports betting platform' and Polymarket's description as 'a platform where people can bet on future events.' The state contends that the structure of prediction markets falls within its definition of a bet, regardless of labeling or who takes the other side of the trade. The complaints also highlight the platforms' revenue model, which involves charging transaction fees on each contract, 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 by the CFTC. However, state courts have consistently taken a different stance, with Nevada and New York characterizing the contracts as 'indistinguishable' from gambling and 'bets,' respectively. Wisconsin's lawsuit adds to the growing list of state challenges, which may ultimately require the Supreme Court to decide whether labeling something a financial contract is sufficient to distinguish it from a bet.