Wisconsin Takes on Prediction Market Operators, Including Kalshi, Coinbase, and Crypto.com

The prediction market industry has long maintained that its products are legitimate financial instruments, rather than mere bets. However, Wisconsin has taken a firm stance against this claim, filing a lawsuit against several major operators, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. According to the state's complaint, the marketing language used by these platforms is actually more akin to gambling than investing. Wisconsin's Attorney General, Josh Kaul, stated that 'attempting to disguise unlawful activities as lawful ones does not make them so.' The lawsuit centers on the question of whether the contracts offered by these platforms constitute financial instruments under the Commodity Futures Trading Commission (CFTC) or bets under state gaming laws. This distinction is crucial, as it determines whether the industry will be subject to federal regulation or state-by-state oversight. The case is likely to ultimately be decided by the Supreme Court. Wisconsin's complaints target three separate ecosystems, including Crypto.com, Polymarket, and Kalshi, which partners with Robinhood and Coinbase to offer sports betting services to state residents. 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 fixed 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 of itself as 'a platform where people can bet on the outcome of future events.' The industry's defense relies on the argument that its contracts are swaps listed on a regulated exchange and therefore fall under the CFTC's exclusive jurisdiction. However, state courts have consistently taken a different view, with Nevada and New York both characterizing the contracts as indistinguishable from gambling. The Wisconsin lawsuit adds to a growing list of state challenges, which may ultimately force the Supreme Court to decide the issue.