Wisconsin Takes on Prediction Market Giants in Lawsuit

The prediction market industry has long maintained that its products are legitimate financial instruments, rather than mere bets. However, Wisconsin has taken a different stance, filing a complaint against several major players, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. According to the state, these platforms are operating as unlicensed gambling venues, using language that disguises their true nature. Wisconsin's Attorney General, Josh Kaul, stated that 'thinly disguising unlawful conduct doesn't make it lawful.' The lawsuit centers on the question of whether these platforms offer financial instruments or bets, a distinction that will determine whether they are regulated at the federal or state level. The case is likely to have far-reaching implications, potentially ending up in the Supreme Court. Wisconsin's complaints target three main areas, including Crypto.com and its derivatives arm, Polymarket and its affiliates, and Kalshi, alongside 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 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, 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 these prediction markets falls within its definition of a bet, regardless of how the products are labeled. The platforms generate revenue by charging transaction fees, similar to a casino taking a cut of wagers. 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 Commodity Futures Trading Commission's exclusive jurisdiction. However, state courts have consistently taken a different position, with Nevada and New York both characterizing the contracts as indistinguishable from gambling. The Wisconsin lawsuit adds to a growing list of state challenges, building a record that could ultimately force the Supreme Court to decide whether calling something a financial contract is enough to keep it from being treated as a bet.