Wisconsin Takes on Prediction Market Operators in Lawsuit

The prediction market industry consistently maintains that its offerings are financial instruments, not wagers. However, Wisconsin has filed a complaint against several major players, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, arguing that their marketing materials reveal them to be unlicensed gambling operators. According to Wisconsin Attorney General Josh Kaul, 'Merely disguising illegal activities does not make them lawful.' The core issue at stake is whether these contracts should be classified as financial instruments under the Commodity Futures Trading Commission (CFTC) or as bets subject to state gaming laws. This distinction will determine whether the rapidly growing market will be regulated at the federal level or fragmented across 50 states, falling under the jurisdiction of local gaming authorities. The case is likely to be heard by the Supreme Court. Wisconsin's complaints, filed in Dane County, target three separate ecosystems, naming Crypto.com, Polymarket, and Kalshi, along with its distribution partners Robinhood and Coinbase. The state's legal argument is that 'event contracts' 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. Examples cited in the filings include 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 advertising, such as 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.' Wisconsin argues that the structure of prediction markets fits squarely within its statutory definition of a bet, regardless of labeling or the counterparty to the trade. The complaints also highlight that platforms generate revenue by charging transaction fees, similar to a casino taking a cut of wagers. The industry's defense relies on federal preemption, with Kalshi arguing that its contracts are swaps listed on a regulated exchange, thus falling under the CFTC's exclusive jurisdiction. This position was recently bolstered by a Third Circuit ruling. However, state courts across the U.S. have consistently taken a different stance, with Nevada and New York both characterizing the contracts as indistinguishable from gambling. Wisconsin's suits contribute to a growing list of state challenges, building a record that may ultimately compel the Supreme Court to decide whether labeling something a financial contract is sufficient to prevent it from being treated as a bet.