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 different stance, filing a complaint against several prominent companies, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, alleging that they are operating as unlicensed gambling venues. According to Wisconsin Attorney General Josh Kaul, 'disguising unlawful conduct does not make it lawful.' The lawsuits raise a fundamental question: are the contracts offered by these platforms legitimate financial instruments under the jurisdiction of the Commodity Futures Trading Commission, or are they simply bets subject to state gambling laws? This question has significant implications, as it will determine whether the rapidly growing prediction market industry will be regulated at the federal level or will be subject to a patchwork of state laws. The issue is likely to ultimately be decided by the Supreme Court. Wisconsin's complaints target three separate ecosystems, including Crypto.com and its derivatives arm, Polymarket and its affiliated entities, and Kalshi, which partners with Robinhood and Coinbase to offer prediction market contracts to state residents. The state argues that the 'event contracts' offered by these platforms are essentially wagers, in which 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 contracts tied to NCAA tournament games, in which traders could buy contracts at prices reflecting implied probabilities, with winning positions paying out $1 and losing ones returning nothing. The state also points to the companies' own marketing materials, including 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.' Wisconsin argues that the structure of prediction markets falls squarely within its statutory definition of a bet, regardless of how the products are labeled or who takes the other side of the trade. The state also notes that the platforms generate revenue by charging transaction fees on each contract, similar to a casino taking a cut of wagers placed on its floor. The industry's defense relies on the argument that federal law preempts state regulation, with Kalshi arguing that its contracts are swaps listed on a regulated exchange and therefore fall under the exclusive jurisdiction of the CFTC. However, state courts have consistently taken a different view, with Nevada and New York both characterizing the contracts as indistinguishable from gambling. The Wisconsin lawsuits add to a growing list of state challenges, which may ultimately force the Supreme Court to decide whether the prediction market industry's claims of offering legitimate financial instruments are sufficient to shield it from being treated as a form of gambling.