Wisconsin Takes on Prediction Market Giants in Lawsuit

The prediction market industry maintains that its offerings are legitimate financial instruments, but Wisconsin is challenging this claim. In a recent complaint filed against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, the state cites the companies' marketing materials to argue that they are operating as unlicensed gambling venues. According to Attorney General Josh Kaul, 'disguising unlawful conduct does not make it lawful.' The lawsuit raises a fundamental question: are these contracts financial instruments under federal regulation, or are they bets subject to state gaming laws? This 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 'event contracts' are essentially wagers, where 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 advertising, which they claim acknowledges the nature of these contracts as bets. 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 federal jurisdiction. However, state courts have consistently taken a different position, with Nevada and New York characterizing the contracts as indistinguishable from gambling. Wisconsin's lawsuit adds to a growing list of state challenges, which may ultimately require the Supreme Court to decide whether labeling something a financial contract is enough to exempt it from being treated as a bet.