Wisconsin Takes on Prediction Markets, Files Lawsuits Against Multiple Companies

The prediction market industry consistently claims that its products are legitimate financial instruments, not mere bets. However, Wisconsin has taken a firm stance against this notion, filing a complaint against several major companies, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. According to Wisconsin Attorney General Josh Kaul, attempting to disguise unlawful activities as lawful ones is unacceptable. The core issue at hand is whether these contracts should be classified as financial instruments under the Commodity Futures Trading Commission or as bets under state gambling laws. This distinction will determine whether the industry operates under a unified federal rulebook or is subject to individual state regulations. The case is likely to eventually reach the Supreme Court. Wisconsin's complaints target three distinct ecosystems, naming Crypto.com, Polymarket, and Kalshi, along with its distribution partners Robinhood and Coinbase. The legal argument is that 'event contracts' are essentially 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. Additionally, state prosecutors reference 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 for betting on future events. The state argues that the structure of prediction markets aligns with its definition of a bet, regardless of labeling or who takes the other side of the trade. The complaints also highlight that 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 swaps listed on a regulated exchange, falling under the CFTC's exclusive jurisdiction. However, state courts have consistently taken a different position, with Nevada and New York both likening the contracts to gambling. Wisconsin's suits add to the growing list of state challenges, building a record that may ultimately require the Supreme Court to decide whether labeling something a financial contract is enough to distinguish it from a bet.