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

The prediction market industry maintains that its products are legitimate financial instruments, but Wisconsin disagrees. In a recent complaint filed against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, the state cites the companies' own marketing materials to argue that they are operating as unlicensed gambling venues. According to Wisconsin Attorney General Josh Kaul, 'disguising unlawful conduct does not make it lawful.' The core issue at hand is whether the contracts offered by these platforms are financial instruments regulated by the Commodity Futures Trading Commission (CFTC) or bets subject to state gambling laws. This distinction will determine whether the market operates under federal rules or is regulated by individual states. The case is likely to end up in the Supreme Court. Wisconsin's complaints target three separate ecosystems, including Crypto.com, Polymarket, and Kalshi, along with its distribution partners Robinhood and Coinbase. The state argues 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. The complaints also highlight the platforms' revenue models, which involve 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 regulated by the CFTC. However, state courts have consistently taken a different stance, with Nevada and New York characterizing the contracts as indistinguishable from gambling. The Wisconsin suits add to a growing list of state challenges, which may ultimately require the Supreme Court to decide whether labeling something a financial contract is enough to exempt it from being treated as a bet.