Wisconsin Takes on Prediction Market Platforms in Lawsuit Against Kalshi, Coinbase, and Others

The prediction market industry has long maintained that its products are legitimate financial instruments, not mere bets. However, Wisconsin has taken a firm stance against this claim, filing a complaint against several major players, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. According to the state, these platforms are operating as unlicensed gambling venues, disguising their true nature with clever marketing. Attorney General Josh Kaul emphasized that "thinly disguising unlawful conduct doesn't make it lawful." The lawsuits hinge on a fundamental question: do these contracts constitute financial instruments under the Commodity Futures Trading Commission (CFTC), or are they simply bets subject to state gambling laws? This distinction will determine whether the rapidly growing market is regulated at the federal level or fragmented across 50 states, falling under the jurisdiction of local gaming regulators. The issue is likely to be decided by the Supreme Court. Wisconsin's complaints target three distinct ecosystems, naming Crypto.com, Polymarket, and Kalshi, alongside its distribution partners Robinhood and Coinbase. The state argues that the so-called "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. The complaints cite examples of traders buying contracts tied to NCAA tournament games, with winning positions paying out $1 and losing ones returning nothing. State prosecutors also point 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 state contends that the structure of prediction markets falls squarely within its statutory definition of a bet, regardless of labeling or the counterparty to the trade. The complaints also highlight that platforms generate revenue by charging transaction fees on each contract, 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, thereby falling under the CFTC's exclusive jurisdiction. This position received a boost when the Third Circuit sided with the company, treating the regulator's decision not to block the contracts as effectively settling the jurisdictional question. Nevertheless, state courts across the U.S. have consistently taken a different stance, with Nevada and New York characterizing the contracts as "indistinguishable" from gambling and "each contract is a bet," respectively. The Wisconsin suits contribute to a growing list of state challenges, building a record that may ultimately compel the Supreme Court to decide whether labeling something a financial contract is sufficient to distinguish it from a bet.