Wisconsin Takes on Prediction Market Giants in Lawsuit

The prediction market industry is facing a new challenge as Wisconsin files a lawsuit against several major players, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. At the heart of the dispute is the question of whether the contracts offered by these platforms constitute financial instruments or bets. According to Wisconsin, the language used by these companies in their marketing materials suggests that they are, in fact, facilitating gambling activities. The state's Attorney General, Josh Kaul, stated that 'disguising unlawful conduct does not make it lawful.' The lawsuit targets three separate ecosystems, including Crypto.com, Polymarket, and Kalshi, which partners with Robinhood and Coinbase to offer prediction market services to state residents. The legal theory behind the lawsuit is 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 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. Wisconsin also points to the platforms' own advertising, such as Kalshi's claim to be 'The First Nationwide Legal Sports Betting Platform,' as evidence that they are operating as gambling venues. 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 jurisdiction of the Commodity Futures Trading Commission (CFTC). 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 likely to add to the growing list of state challenges and may ultimately lead to a Supreme Court decision on the matter.