Wisconsin Takes on Prediction Market Platforms, Files Lawsuits Against Multiple Companies

The prediction market industry has consistently maintained that its products are legitimate financial instruments, not wagers. However, Wisconsin has taken a contrary stance, filing complaints against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, citing their own marketing materials as evidence of unlawful gambling operations. According to Wisconsin Attorney General Josh Kaul, 'disguising unlawful conduct as something lawful does not make it legitimate.' The core issue at hand is whether these platforms offer financial instruments regulated by the Commodity Futures Trading Commission (CFTC) or if they facilitate bets that fall under state gambling laws. This question is likely to end up in the Supreme Court, as it will determine whether these markets are subject to federal regulation or state-by-state oversight. Wisconsin's complaints target three main groups: Crypto.com and its derivatives arm, Polymarket and its affiliates, 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 payout if they are correct. The complaints highlight the platforms' own advertising, such as Kalshi's claim to be 'The First Nationwide Legal Sports Betting Platform' and Polymarket's description as 'a platform where people can bet on the outcome of future events.' Wisconsin contends that the structure of these prediction markets aligns with the state's definition of a bet, regardless of the labeling or the counterparty involved. The state also notes that these platforms generate revenue through 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 regulated swaps that fall under the CFTC's jurisdiction. However, state courts have been consistent in their opposition to this view, with Nevada and New York both characterizing these contracts as indistinguishable from gambling. Wisconsin's lawsuits contribute to a growing list of state challenges that may ultimately prompt the Supreme Court to decide whether labeling something a financial contract is sufficient to exempt it from being treated as a wager.