Wisconsin Takes on Prediction Market Platforms, Files Lawsuits Against Kalshi, Coinbase, and Others

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 complaints against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. According to Attorney General Josh Kaul, 'disguising unlawful conduct as lawful does not make it so.' The lawsuits hinge on the question of whether these platforms' contracts are financial instruments under federal law or simply bets under state gaming regulations. This distinction is crucial, as it will determine whether the industry is subject to a single federal regulatory framework or will be governed by 50 different state jurisdictions. The issue is likely to be decided by the Supreme Court. Wisconsin's complaints target three separate ecosystems, including Crypto.com, Polymarket, and Kalshi, which partners with Robinhood and Coinbase to facilitate sports betting for 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 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. State prosecutors also point to the platforms' 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.' The state contends that the structure of prediction markets falls squarely within its definition of a bet, regardless of how the products are labeled. The complaints also emphasize that the platforms generate revenue by charging transaction fees, similar to a casino taking a cut of wagers. 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 Commodity Futures Trading Commission. However, state courts have consistently taken a different view, with Nevada and New York 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 the issue.