Wisconsin Takes on Prediction Markets, Files Lawsuits Against Multiple Companies

Prediction market operators consistently claim that their offerings are legitimate financial instruments, not bets. However, Wisconsin disagrees and has filed a complaint against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, using the companies' own marketing materials as evidence to classify them as unlicensed gambling venues. According to Wisconsin Attorney General Josh Kaul, 'disguising unlawful activities does not make them lawful.' The underlying issue in these lawsuits is whether the contracts offered by these platforms are financial instruments regulated by the Commodity Futures Trading Commission (CFTC) or if they are bets subject to state gambling laws. This distinction will determine whether the rapidly expanding prediction market will be governed by a single federal rulebook or be subject to the jurisdiction of local gaming regulators in each state. The matter is likely to be decided by the Supreme Court. Wisconsin's complaints target three separate ecosystems, naming Crypto.com, Polymarket, and Kalshi, along with its distribution partners Robinhood and Coinbase. The lawsuits argue that the 'event contracts' offered by these platforms are essentially wagers, where users pay to take a position on a real-world outcome and receive a payout if they are correct. Examples cited in the filings include contracts tied to NCAA tournament games, where winning positions pay out $1 and losing ones return nothing. The state also references Kalshi's Instagram ads, which describe the platform as 'The First Nationwide Legal Sports Betting Platform,' and Polymarket's ads, which describe it as 'a platform where people can bet on the outcome of future events.' Wisconsin argues that the structure of these prediction markets falls within its statutory definition of a bet, regardless of labeling or the counterparty to the trade. The complaints also highlight that these 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 and therefore fall under the CFTC's exclusive jurisdiction. This position was recently supported by the Third Circuit, which treated 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 classifying the contracts as indistinguishable from gambling. Wisconsin's lawsuits contribute to a growing list of state challenges that may ultimately force the Supreme Court to decide whether labeling something a financial contract is sufficient to distinguish it from a bet.