Wisconsin Takes on Prediction Market Operators in Lawsuit

The state of Wisconsin has launched a lawsuit against several prominent prediction market operators, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, alleging that their activities constitute unlicensed gambling. According to the complaint, the language used by these platforms to describe their products is more akin to gambling than investing. Attorney General Josh Kaul stated that attempting to disguise unlawful conduct does not make it lawful. The lawsuit centers on the question of whether the contracts offered by these platforms are financial instruments or bets, and whether they fall under federal or state jurisdiction. Wisconsin's complaint targets 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 the structure of these prediction markets is equivalent to a bet, regardless of how they are labeled, and that the platforms generate revenue by charging transaction fees, similar to a casino. The industry's defense relies on federal preemption, with Kalshi arguing that its contracts are regulated by the Commodity Futures Trading Commission (CFTC). However, state courts have consistently taken a different stance, with Nevada and New York characterizing the contracts as indistinguishable from gambling. The Wisconsin lawsuit is the latest in a series of state challenges that may ultimately require the Supreme Court to decide whether these contracts are financial instruments or bets.