Wisconsin Takes Legal Action Against Multiple Companies Over Prediction Market Activities

The prediction market industry has consistently maintained that its products are legitimate financial tools, not wagering activities. However, Wisconsin has expressed its disagreement with this stance, and is now taking legal action against several companies, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, citing their marketing language as evidence of unlawful gambling operations. According to Attorney General Josh Kaul, 'merely disguising illicit activities does not render them lawful.' The core issue at the heart of these lawsuits is whether the contracts offered by these platforms are financial instruments regulated by the Commodity Futures Trading Commission (CFTC) or if they constitute bets 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 subject to the jurisdiction of individual state gaming regulators. It is likely that this matter will ultimately be decided by the Supreme Court. Wisconsin's complaints, filed in Dane County, target three distinct ecosystems. The first names Crypto.com and its derivatives arm, while the second targets Polymarket and affiliated entities. The third complaint involves Kalshi and its distribution partners, Robinhood and Coinbase, alleging that these platforms collectively facilitate sports betting for state residents. The legal argument presented is that the so-called '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. 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. State prosecutors also reference Kalshi's Instagram ads, which describe the platform as 'The First Nationwide Legal Sports Betting Platform,' and Polymarket's ads, which describe it 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 how the products are labeled or who takes the other side of the trade. The complaints also 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, thereby falling under the CFTC's exclusive jurisdiction. This position recently received support from the Third Circuit, 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 describing the contracts as 'indistinguishable' from gambling and New York's Attorney General, Letitia James, stating that 'each contract is a bet.' For now, Wisconsin's lawsuits add to the growing list of state challenges, each contributing to 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.