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

The prediction market industry has long maintained that its products are legitimate financial instruments, rather than bets. However, Wisconsin has expressed its disagreement with this stance, filing a complaint against several companies, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. According to the state's Attorney General, Josh Kaul, 'Attempting to disguise unlawful activities as lawful ones does not make them so.' The core issue at hand is whether these contracts should be classified as financial instruments under the Commodity Futures Trading Commission (CFTC) or as bets under state gambling laws. This distinction will determine whether the industry operates under a single federal rulebook or is subject to the jurisdiction of local gaming regulators across 50 states. The matter is likely to be resolved by the Supreme Court. Wisconsin's complaints target three separate ecosystems, naming Crypto.com, Polymarket, and Kalshi, along with its distribution partners Robinhood and Coinbase. The state argues that the 'event contracts' offered by these platforms are, in fact, wagers, where 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 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, which describe the platform as 'The First Nationwide Legal Sports Betting Platform,' and Polymarket's ads, which call it 'a platform where people can bet on the outcome of future events.' The state maintains that the structure of prediction markets falls within its statutory definition of a bet, regardless of how the products are labeled or who takes the other side of the trade. The complaints also highlight 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 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 both characterizing the contracts as indistinguishable from gambling. Wisconsin's suits add to the growing list of state challenges, each building a record that could ultimately force the Supreme Court to decide whether labeling something a financial contract is enough to keep it from being treated as a bet.