Wisconsin Takes on Prediction Market Giants in Lawsuit

The prediction market industry has consistently claimed that its products are legitimate financial instruments, not mere bets. However, Wisconsin has taken a strong stance against this assertion, filing a complaint against several major players, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. According to the state's Attorney General, Josh Kaul, 'disguising unlawful conduct as something lawful does not make it so.' The lawsuit centers around the question of whether these platforms offer financial instruments regulated by the Commodity Futures Trading Commission (CFTC) or if they are essentially bets subject to state gambling laws. This distinction is crucial, as it determines whether the rapidly growing market will be governed by a single federal rulebook or fragmented across 50 states under local gaming regulations. The case is likely to end up in the Supreme Court. Wisconsin's complaints target three main ecosystems: one involving Crypto.com and its derivatives arm, another focusing on Polymarket and its affiliates, and a third targeting Kalshi and its distribution partners, Robinhood and Coinbase. The state argues that the 'event contracts' offered by these platforms are, in fact, wagers, where users pay to take a position on a real-world outcome and receive a payout if they are correct. The lawsuit cites examples of 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 platforms' own marketing language, such as Kalshi's claim to be 'The First Nationwide Legal Sports Betting Platform' and Polymarket's description as 'a platform where people can bet on the outcome of future events.' The complaint emphasizes that the structure of these prediction markets falls within the state's definition of a bet, regardless of how the products are labeled. Moreover, the 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 regulated swaps under the CFTC's jurisdiction. However, state courts have consistently taken a different stance, with Nevada and New York 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.