Wisconsin Takes on Prediction Markets, Files Lawsuit Against Multiple Companies

The prediction market industry maintains that its products are legitimate financial instruments, but Wisconsin disagrees. In a recent complaint, the state is targeting several companies, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, alleging that they operate as unlicensed gambling venues. According to Attorney General Josh Kaul, 'disguising unlawful conduct does not make it lawful.' The core issue revolves around the question of whether these contracts are financial instruments under the Commodity Futures Trading Commission (CFTC) or simply bets under state law. This distinction determines whether the market operates under federal regulations or state gaming laws. The case is likely to end up in the Supreme Court. Wisconsin's complaints focus on three main areas, naming Crypto.com, Polymarket, and Kalshi, along with its partners Robinhood and Coinbase, arguing that these platforms facilitate sports betting for state residents. The state claims that the so-called '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. Examples cited include traders buying contracts tied to NCAA tournament games, with winning positions paying out $1 and losing ones returning nothing. The state also points to the companies' own marketing materials, such as Kalshi's claim to be 'The First Nationwide Legal Sports Betting Platform' and Polymarket's description as 'a platform where people can bet on the outcome of future events.' The state argues that the structure of these 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 that platforms generate revenue through 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, thus falling under the CFTC's exclusive jurisdiction. However, state courts have consistently taken a different stance, with Nevada and New York treating these contracts as indistinguishable from gambling. Wisconsin's suits add to the growing list of state challenges, building a record that may ultimately force the Supreme Court to decide whether labeling something a financial contract is enough to distinguish it from a bet.