Wisconsin Takes on Prediction Market Giants in Lawsuit

The prediction market industry has consistently maintained that its products are legitimate financial instruments, rather than mere bets. However, Wisconsin has taken a firm stance against this claim, filing a lawsuit against several major players, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. The state's complaint centers on the language used by these platforms, which Wisconsin argues is more akin to gambling than investing. According to Attorney General Josh Kaul, 'disguising unlawful conduct as lawful does not make it so.' The lawsuit raises a fundamental question: do these contracts constitute financial instruments under the Commodity Futures Trading Commission (CFTC), or are they simply bets subject to state gaming laws? This 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 reality, wagers, where users pay to take a position on a real-world outcome and receive a fixed payout if they are correct. The complaint cites 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 within its statutory definition of a bet, regardless of how the products are labeled or who takes the other side of the trade. Furthermore, the complaints emphasize that these platforms generate revenue by charging transaction fees on each contract, similar to a casino taking a cut of wagers placed on its floor. The industry's defense relies on federal preemption, with Kalshi arguing that its contracts are swaps listed on a regulated exchange and therefore fall under the CFTC'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. Wisconsin's lawsuit adds 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 sufficient to exempt it from being treated as a bet.