Wisconsin Takes on Prediction Market Giants in Lawsuit

The prediction market industry has consistently maintained that its products are legitimate financial instruments, rather than mere bets. However, Wisconsin has taken a different stance, filing a lawsuit against several major players, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, alleging that they are operating unlicensed gambling venues. According to Wisconsin Attorney General Josh Kaul, 'disguising unlawful conduct as something lawful does not make it legitimate.' The lawsuit centers around the question of whether prediction market contracts are financial instruments regulated by the Commodity Futures Trading Commission (CFTC) or bets subject to state gaming laws. This distinction is crucial, as it will determine whether the industry is subject to federal or state regulation. The case is likely to end up in the Supreme Court. Wisconsin's complaints target three separate entities: Crypto.com and its derivatives arm, Polymarket and its affiliates, 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, where users pay to take a position on a real-world outcome and receive a payout if they are correct. The lawsuit cites 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 platforms' own marketing materials, such as Kalshi's Instagram ads, which claim to offer 'The First Nationwide Legal Sports Betting Platform,' and Polymarket's, which describes itself as 'a platform where people can bet on the outcome of future events.' The state argues that the structure of prediction markets falls within its definition of a bet, regardless of how the products are labeled. 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. However, state courts have consistently taken a different position, with Nevada and New York both characterizing the contracts as bets. The Wisconsin lawsuit adds to a growing list of state challenges, which could ultimately force the Supreme Court to decide the issue.