Wisconsin Takes on Prediction Markets, Files Lawsuits Against Multiple Companies

The prediction market industry has long maintained that its products are legitimate financial instruments, rather than mere bets. However, Wisconsin has taken a firm stance against this notion, filing a complaint against several major companies, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. According to the state, these platforms are operating as unlicensed gambling venues, using language that is more akin to wagering than investing. Wisconsin's Attorney General, Josh Kaul, emphasized that 'disguising unlawful conduct does not make it lawful.' The lawsuits center around the question of whether these platforms offer financial instruments or bets, a distinction that will determine whether they are regulated at the federal or state level. If the matter ultimately reaches the Supreme Court, it could have far-reaching implications for the industry. The complaints filed by Wisconsin target three separate ecosystems, including Crypto.com, Polymarket, and Kalshi, as well as its 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 state also points to the platforms' own marketing materials, which often use language more commonly associated with betting. For instance, Kalshi's Instagram ads claim that the platform is 'The First Nationwide Legal Sports Betting Platform,' while Polymarket describes itself as 'a platform where people can bet on the outcome of future events.' The state contends that the structure of these prediction markets falls within its definition of a bet, regardless of how the products are labeled. Furthermore, the platforms' revenue models, which involve charging transaction fees on each contract, are likened to a casino taking a cut of wagers. The industry's defense relies on the argument that these contracts are federally regulated swaps, but Wisconsin's lawsuits are part of a growing trend of state-level challenges. Other states, such as Nevada and New York, have also taken a dim view of prediction markets, with some calling them 'indistinguishable' from gambling. The Supreme Court may ultimately be called upon to settle the matter, determining whether the prediction market industry can continue to operate under its current model.