Wisconsin Takes On Prediction Markets, Sues Multiple Companies Over Alleged Unlicensed Gambling

The prediction market sector has consistently maintained that its offerings are legitimate financial instruments, rather than mere bets. However, Wisconsin has expressed skepticism towards this claim, and a recent lawsuit filed against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com cites the companies' own marketing materials as evidence of unlicensed gambling operations. According to Wisconsin Attorney General Josh Kaul, 'attempting to disguise unlawful activities does not make them lawful.' The core issue at play 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 rapidly growing prediction market will be subject to a single federal regulatory framework or will be governed by a patchwork of state laws and local gaming regulators, potentially leading to a Supreme Court decision. Wisconsin's complaints 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 lawsuits argue that so-called 'event contracts' are, in essence, wagers, where users pay to take a position on a real-world outcome and receive 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. The state also points to Kalshi's Instagram ads, which describe the platform as 'The First Nationwide Legal Sports Betting Platform,' and Polymarket's ads, which refer to the platform as a place where people can 'bet on the outcome of future events.' Wisconsin prosecutors contend that the structure of prediction markets falls squarely within the state's definition of a bet, regardless of how the products are labeled or who takes the other side of the trade. Furthermore, the complaints highlight that these 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. This position received support from the Third Circuit earlier this month. Nevertheless, state courts across the U.S. have consistently taken a different stance, with Nevada and New York both characterizing these contracts as indistinguishable from gambling. Wisconsin's suits add to the growing list of state challenges, building a record that may ultimately force the Supreme Court to decide whether labeling something as a financial contract is sufficient to prevent it from being treated as a bet.