Wisconsin Takes on Prediction Market Giants in Lawsuit

The prediction market industry has consistently maintained that its products are legitimate financial instruments, not mere bets. However, Wisconsin has taken a stance against this claim, filing a lawsuit against prominent players such as Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. The state's Attorney General, Josh Kaul, emphasized that 'disguising unlawful conduct does not make it lawful.' The lawsuit centers on the question of whether these platforms' contracts are indeed financial instruments under the Commodity Futures Trading Commission (CFTC) or simply bets subject to state gambling laws. This distinction determines whether the market operates under a unified federal framework or is fragmented across 50 states, with each state having its own regulatory oversight. The case is likely to be appealed to the Supreme Court. Wisconsin's complaints target three main ecosystems: Crypto.com and its derivatives arm, Polymarket and affiliated entities, and Kalshi along with its distribution partners Robinhood and Coinbase. The legal argument is that the so-called 'event contracts' offered by these platforms are, in essence, wagers where users pay to take a position on a real-world outcome and receive a payout if they are correct. The state cites examples where traders can buy contracts tied to NCAA tournament games, with winning positions paying out $1 and losing ones returning nothing. It also references 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 these prediction markets fits squarely within its definition of a bet, regardless of labeling or who takes the other side of the trade. Furthermore, the complaint highlights that these platforms generate revenue by charging transaction fees on each contract, 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. However, state courts across the U.S. have been consistent in their stance that these contracts are indistinguishable from gambling. The lawsuit by Wisconsin adds to the growing list of state challenges, building a record that may ultimately force the Supreme Court to decide whether labeling something as a financial contract is enough to distinguish it from a bet.