Wisconsin Takes on Prediction Market Operators in Lawsuit

Prediction market operators have consistently maintained that their offerings are legitimate financial instruments, rather than mere bets. However, Wisconsin has taken a firm stance against this claim, filing a complaint against several major players, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, citing their own marketing materials as evidence of unlawful gambling activities. According to Attorney General Josh Kaul, 'merely disguising illicit conduct does not render it lawful.' The lawsuit centers on the question of whether these contracts constitute financial instruments under the Commodity Futures Trading Commission (CFTC) or bets subject to state gambling laws. This distinction is crucial, as it will determine whether the rapidly expanding market will be regulated by a single federal authority or fragmented across 50 states, with each state's gaming regulators exerting jurisdiction. The matter is likely to be ultimately decided by the Supreme Court. Wisconsin's complaints, filed in Dane County, target three distinct ecosystems, naming Crypto.com, Polymarket, and Kalshi, along with its distribution partners Robinhood and Coinbase, alleging that these platforms facilitate sports betting for state residents. The legal argument posits that 'event contracts' are, in essence, wagers, where users pay to take a position on a real-world outcome, receiving a fixed payout if they are correct. Examples cited in the filings include traders buying contracts tied to NCAA tournament games, with winning positions paying out $1 and losing ones returning nothing. State prosecutors also point to Kalshi's Instagram ads, which tout the platform as 'The First Nationwide Legal Sports Betting Platform,' and Polymarket's ads, which describe itself as 'a platform where people can bet on the outcome of future events.' The state contends that the structure of prediction markets falls squarely within its statutory definition of a bet, regardless of labeling or the counterparty to the trade. Furthermore, the complaints highlight that these platforms generate revenue by charging transaction fees on each contract, drawing parallels to a casino taking a cut of wagers placed on its floor. 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 a boost when the Third Circuit sided with the company, effectively settling the jurisdictional question. Nevertheless, state courts across the U.S. have consistently taken a different stance, with Nevada deeming the contracts 'indistinguishable' from gambling and New York AG Letitia James stating that 'each contract is a bet.' For now, Wisconsin's suits contribute to a growing list of state challenges, each building a record that could eventually compel the Supreme Court to decide whether labeling something a financial contract is sufficient to prevent it from being treated as a bet.