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 rejected this claim, and in a recent lawsuit against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, the state argues that the companies' own marketing materials reveal them to be unlicensed gambling operators. According to Wisconsin Attorney General Josh Kaul, 'disguising unlawful conduct as something else does not make it lawful.' The lawsuit raises a fundamental question: are these contracts legitimate financial instruments under the jurisdiction of the Commodity Futures Trading Commission, or are they simply bets subject to state gambling laws? This issue is likely to ultimately be decided by the Supreme Court. Wisconsin's complaints target three separate ecosystems, including Crypto.com, Polymarket, and Kalshi, which partner with Robinhood and Coinbase to facilitate sports betting for state residents. The state's legal theory is 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 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. State prosecutors also point to the platforms' own advertising, which they claim reveals their true nature as gambling operators. For instance, Kalshi's Instagram ads describe the platform as 'The First Nationwide Legal Sports Betting Platform,' while Polymarket's ads call it '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 emphasize 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 CFTC's exclusive jurisdiction. However, state courts have consistently taken a different position, with Nevada and New York both characterizing the contracts as indistinguishable from gambling. Wisconsin's lawsuit adds to a growing list of state challenges, each building a record that could ultimately force the Supreme Court to decide whether calling something a financial contract is enough to keep it from being treated as a bet.