Wisconsin Takes on Prediction Market Operators, Including Kalshi, Coinbase, and Crypto.com, in Lawsuit

The operators of prediction markets consistently claim that their products are legitimate financial instruments, but Wisconsin is disputing this assertion. In a recent complaint filed against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, the state argues that these platforms are, in fact, unlicensed gambling venues. According to Attorney General Josh Kaul, 'merely disguising illicit activities does not render them lawful.' The core issue underlying these lawsuits is whether the contracts offered by these platforms should be considered financial instruments under the Commodity Futures Trading Commission (CFTC) or bets subject to state gambling laws. This distinction will determine whether the rapidly growing prediction market will be governed by a single federal regulatory framework or will be subject to the jurisdiction of local gaming regulators in each of the 50 states. This matter is likely to be decided by the Supreme Court. Wisconsin's complaints, filed in Dane County, target three distinct ecosystems, including Crypto.com and its derivatives arm, Polymarket and affiliated entities, as well as Kalshi and its distribution partners Robinhood and Coinbase. The complaints allege that the 'event contracts' offered by these platforms are, in essence, wagers, where users pay to take a position on a real-world outcome and receive a fixed payout if they are correct. For instance, traders could purchase 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 describe the platform as 'The First Nationwide Legal Sports Betting Platform,' and Polymarket's ads, which characterize it as 'a platform where people can bet on the outcome of future events.' The state argues that the structure of prediction markets falls squarely within its statutory definition of a bet, regardless of how the products are labeled or who takes the other side of the trade. Furthermore, the complaints highlight that these 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 U.S. have consistently taken a different position, with Nevada deeming the contracts 'indistinguishable' from gambling and New York AG Letitia James stating that 'each contract is a bet.' For now, Wisconsin's suits contribute to a growing list of state challenges, each building a record that could ultimately force the Supreme Court of the United States to decide whether labeling something a financial contract is sufficient to keep it from being treated as a bet.