Wisconsin Takes on Prediction Markets, Sues Multiple Companies

The prediction market industry has consistently claimed that its products are legitimate financial instruments, but Wisconsin is disputing this assertion. In a recent lawsuit against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, the state is using the companies' own marketing materials to argue that they are operating as unlicensed gambling venues. According to Attorney General Josh Kaul, 'attempting to disguise unlawful 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 or as bets under state gambling laws. This distinction determines whether the industry will be subject to a single federal regulatory framework or will be governed by individual state laws. The case is likely to ultimately be decided by the Supreme Court. Wisconsin's complaints target three separate 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 essentially 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. The state also points to the companies' 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.' The industry's defense relies on the argument that federal law preempts state regulation, 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 view, with Nevada and New York characterizing the contracts as indistinguishable from gambling. The Wisconsin lawsuits add to a growing list of state challenges, which may eventually force the Supreme Court to decide whether the industry's claims of offering legitimate financial instruments are valid.