Wisconsin Takes on Prediction Markets, Files Lawsuits Against Multiple Companies

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 complaint against several major companies, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. The state's Attorney General, Josh Kaul, emphasized that disguising unlawful activities does not make them lawful. The core issue at hand is whether these contracts should be considered financial instruments under the Commodity Futures Trading Commission (CFTC) or bets under state gambling laws. This distinction will determine whether the rapidly growing market will be regulated under a single federal framework or fragmented across 50 states, subject to local gaming regulations. The case is likely to eventually reach the Supreme Court. Wisconsin's complaints target three distinct ecosystems, naming Crypto.com, Polymarket, and Kalshi, along with their respective partners, Robinhood and Coinbase. The legal argument is that the so-called '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 fixed payout if they are correct. The state cites examples of traders buying contracts tied to NCAA tournament games, with winning positions paying out $1 and losing ones returning nothing. The complaints also highlight the platforms' own marketing materials, which describe their services as betting platforms. State prosecutors argue that the structure of prediction markets falls within the statutory definition of a bet, regardless of labeling or the counterparty involved. 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 the contracts as indistinguishable from gambling. Wisconsin's suits contribute to a growing list of state challenges, which may ultimately prompt the Supreme Court to decide whether labeling something a financial contract is sufficient to distinguish it from a bet.