Wisconsin Takes on Prediction Market Giants in Lawsuit

The prediction market industry has consistently claimed that its products are legitimate financial instruments, rather than mere bets. However, Wisconsin has taken a stance against this notion, filing a complaint against several major players in the industry, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. The state's Attorney General, Josh Kaul, stated that 'disguising unlawful conduct does not make it lawful.' The lawsuit centers around the question of whether these platforms are offering financial instruments or facilitating bets, which would determine whether they fall under federal or state jurisdiction. Wisconsin's complaints target three separate ecosystems, including Crypto.com and its derivatives arm, Polymarket and its affiliated entities, and Kalshi, along with its distribution partners Robinhood and Coinbase. The state argues that the 'event contracts' offered by these platforms are, in fact, wagers, where users pay to take a position on a real-world outcome and receive a payout if they are correct. The lawsuit cites examples of 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 platforms' own marketing materials, such as Kalshi's Instagram ads claiming to be 'The First Nationwide Legal Sports Betting Platform,' and Polymarket's description of itself as 'a platform where people can bet on the outcome of future events.' The industry's defense relies on the argument of federal preemption, with Kalshi claiming that its contracts are swaps listed on a regulated exchange and therefore fall under the Commodity Futures Trading Commission's exclusive jurisdiction. However, state courts have consistently taken a different position, with Nevada and New York both characterizing the contracts as 'indistinguishable' from gambling. The Wisconsin lawsuit adds to a growing list of state challenges, which may ultimately force the Supreme Court to decide whether calling something a financial contract is enough to keep it from being treated as a bet.