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

The state of Wisconsin has launched a lawsuit against several prominent companies, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, alleging that their prediction market platforms are operating as unlicensed gambling venues. According to the complaint, these companies are using language that is more characteristic of gambling than investing, which contradicts their claims that their products are financial instruments. Wisconsin's Attorney General, Josh Kaul, stated that 'thinly disguising unlawful conduct doesn't make it lawful.' The lawsuit raises a crucial question: are the contracts offered by these platforms financial instruments under the Commodity Futures Trading Commission (CFTC), or are they bets that fall under state gambling law? This distinction will determine whether the prediction market industry will be regulated at the federal level or will be subject to individual state laws. The case is likely to end up in the Supreme Court. The complaints filed by Wisconsin target three separate ecosystems, including Crypto.com and its derivatives arm, Polymarket and its affiliated entities, 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 fixed payout if they are correct. The complaint 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 companies' own marketing materials, such as Kalshi's Instagram ads claiming 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 complaint emphasizes that the structure of prediction markets falls within the state's statutory definition of a bet, regardless of how the products are labeled. The industry's defense relies on federal preemption, with Kalshi arguing 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 position, with Nevada and New York characterizing the contracts as 'indistinguishable' from gambling and 'bets,' respectively. The lawsuit is part of a growing list of state challenges that may ultimately force the Supreme Court to decide whether calling something a financial contract is enough to keep it from being treated as a bet.