Wisconsin Takes on Prediction Market Giants in Lawsuit

The prediction market industry has consistently maintained that its products are legitimate financial instruments, not mere bets. However, Wisconsin has taken a different stance, filing a complaint against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, citing their own marketing materials as evidence of unlicensed gambling operations. According to Attorney General Josh Kaul, 'Disguising unlawful activities as lawful ones does not make them so.' The core issue at hand is whether these contracts fall under the purview of the Commodity Futures Trading Commission (CFTC) as financial instruments or are instead subject to state gambling laws. This question has significant implications, as it will determine whether the rapidly growing prediction market operates under a unified federal regulatory framework or is instead governed by a patchwork of state laws. The matter is likely to be decided by the Supreme Court. Wisconsin's complaints, filed in Dane County, target three distinct ecosystems, naming Crypto.com, Polymarket, and Kalshi, as well as their respective partners, including Robinhood and Coinbase. The state's legal argument is that 'event contracts' offered by these platforms constitute wagers, wherein 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. State prosecutors also point to the platforms' own advertising, such as 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 argues that the structure of prediction markets falls squarely within its statutory definition of a bet, regardless of labeling or the counterparty to the trade. Furthermore, the complaints emphasize that these platforms generate revenue by charging transaction fees on each contract, 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 CFTC's exclusive jurisdiction. This position was recently bolstered by a Third Circuit ruling, which treated the regulator's decision not to block the contracts as effectively settling the jurisdictional question. However, state courts across the US have consistently taken a different stance, with Nevada and New York characterizing the contracts as 'indistinguishable' from gambling and 'bets,' respectively. Wisconsin's suits contribute to a 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 sufficient to prevent it from being treated as a bet.