Wisconsin Takes on Prediction Markets, Sues Multiple Companies Over Alleged Unlicensed Gambling

The prediction market industry has consistently argued that its products are legitimate financial instruments, not mere bets. However, Wisconsin has expressed its disagreement with this stance, filing a complaint against several major 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 activities as lawful ones does not make them so.' The lawsuit raises a fundamental question: do these contracts constitute financial instruments under the Commodity Futures Trading Commission, or are they simply bets subject to state gambling laws? This question has significant implications, as it will determine whether the rapidly growing prediction market will be regulated under a single federal framework or fragmented across 50 states, each with its own gaming regulations. The case is likely to end up in the Supreme Court. Wisconsin's complaints, filed in Dane County, target three distinct ecosystems. The first complaint names Crypto.com and its derivatives arm, while the second targets Polymarket and its affiliated entities. The third complaint pulls in Kalshi, along with its distribution partners Robinhood and Coinbase, arguing that these platforms collectively facilitate sports betting for Wisconsin residents. Across all three complaints, the underlying legal theory is that 'event contracts' are, in essence, wagers, where users pay to take a position on a real-world outcome and receive a fixed payout if they are correct. The state cites 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 Kalshi's Instagram ads, which claim the platform is 'The First Nationwide Legal Sports Betting Platform,' and Polymarket's ads, which describe 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 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, likening this model 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 CFTC's exclusive jurisdiction. This position recently received a boost when the Third Circuit sided with the company, treating the regulator's decision not to block the contracts as effectively settling the jurisdictional question. However, state courts across the U.S. have been consistent in taking a different stance, with Nevada describing the contracts as 'indistinguishable' from gambling and New York AG Letitia James stating that 'each contract is a bet.' For now, Wisconsin's lawsuits add to the 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 enough to keep it from being treated as a bet.