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, stated that 'disguising unlawful conduct as lawful doesn't make it so.' The core issue at hand is whether these contracts should be classified as financial instruments under the Commodity Futures Trading Commission (CFTC) or as bets under state gambling laws. This distinction will determine whether the rapidly growing market will be subject to a single federal regulatory framework or fragmented across 50 states, falling under the jurisdiction of local gaming regulators. The matter is likely to be decided by the Supreme Court. Wisconsin's complaints target three distinct ecosystems, naming Crypto.com, Polymarket, and Kalshi, along with its distribution partners Robinhood and Coinbase. The state's legal argument is that 'event contracts' offered by these platforms are, in essence, wagers, where users pay to take a position on a real-world outcome and receive a fixed payout if they are correct. The complaints cite 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 companies' own marketing materials, 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.' The state argues that the structure of prediction markets falls squarely within its definition of a bet, regardless of labeling or the counterparty involved. Furthermore, the complaints highlight 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. This position received support from the Third Circuit earlier this month. However, state courts across the U.S. have consistently taken a different stance, with Nevada and New York both characterizing these contracts as indistinguishable from gambling. Wisconsin's lawsuits contribute to a growing list of state challenges, which may ultimately force the Supreme Court to decide whether labeling something a financial contract is enough to exempt it from being treated as a bet.