Wisconsin Takes on Prediction Markets, Sues Multiple Companies Over Alleged Unlicensed Gambling

The prediction market industry maintains that its offerings are legitimate financial instruments, not merely bets. However, Wisconsin has taken a stance against this claim, filing a complaint against several prominent companies, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, citing their marketing materials as evidence of unlicensed gambling operations. According to Wisconsin Attorney General Josh Kaul, 'attempting to disguise unlawful activities does not make them lawful.' The core issue revolves around whether these contracts should be classified as financial instruments under the Commodity Futures Trading Commission (CFTC) or as bets subject to state gambling laws. This distinction will determine whether the rapidly growing market will be regulated at the federal level or fragmented across 50 states, with each state's gaming regulators having jurisdiction. This case is likely to be decided by the Supreme Court. Wisconsin's complaints, filed in Dane County, target three separate ecosystems, naming Crypto.com, Polymarket, and Kalshi, along with their respective partners, Robinhood and Coinbase. The state's argument is that 'event contracts' are essentially wagers, where users pay to take a position on a real-world outcome and receive a fixed payout if they are correct. Examples cited in the filings 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 advertising, such as Kalshi's claim of being 'The First Nationwide Legal Sports Betting Platform' and Polymarket's description as 'a platform where people can bet on the outcome of future events.' Wisconsin argues that the structure of prediction markets falls within its statutory definition of a bet, regardless of labeling or who takes the other side of the trade. The complaints further emphasize that these platforms generate revenue by charging 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 characterizing these contracts as indistinguishable from gambling. Wisconsin's suits contribute to a growing list of state challenges, ultimately building a record that may force the Supreme Court to decide whether labeling something a financial contract is sufficient to distinguish it from a bet.