Wisconsin Takes on Prediction Markets, Files Lawsuits Against Multiple Companies

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 several prominent companies, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, alleging that they are operating as unlicensed gambling venues. According to Wisconsin Attorney General Josh Kaul, 'disguising unlawful conduct does not make it lawful.' The lawsuits raise a fundamental question: are the contracts offered by these platforms legitimate financial instruments, subject to federal regulation, or are they simply bets, subject to state gambling laws? This question has significant implications, as it will determine whether the prediction market industry is subject to a single federal regulatory framework or will be regulated on a state-by-state basis. The issue is likely to ultimately be decided by the Supreme Court. Wisconsin's complaints target three distinct ecosystems, naming Crypto.com, Polymarket, and Kalshi, along with its distribution partners Robinhood and Coinbase. The state argues that the 'event contracts' offered by these platforms are, in fact, wagers, in which users pay money to take a position on a real-world outcome, with the potential to 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. The state also points to the companies' 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 complaints argue that the structure of prediction markets falls squarely within Wisconsin's statutory definition of a bet, regardless of how the products are labeled or who takes the other side of the trade. The state also emphasizes that the 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 exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC). However, state courts have consistently taken a different position, with Nevada and New York both characterizing the contracts as indistinguishable from gambling. The Wisconsin lawsuits add to the growing list of state challenges, building a record that could ultimately force the Supreme Court to decide the issue.