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

The prediction market industry has long maintained that its products are legitimate financial instruments, not mere bets. However, Wisconsin has expressed its skepticism, filing lawsuits against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. The state's Attorney General, Josh Kaul, emphasized that disguising unlawful activities does not make them lawful. The core issue at hand is whether these contracts should be considered financial instruments under the Commodity Futures Trading Commission (CFTC) or if they constitute bets according to state gambling laws. This distinction is crucial as it determines whether the market operates under a unified federal rulebook or is subject to the jurisdiction of local gaming regulators across 50 states. Wisconsin's complaints, filed in Dane County, target three distinct ecosystems: one involving Crypto.com and its derivatives arm, another focusing on Polymarket and its affiliates, and a third targeting Kalshi along with its distribution partners Robinhood and Coinbase. The legal argument presented is that 'event contracts' are, in essence, wagers where users pay to take a position on a real-world outcome, receiving a fixed payout if they are correct. The state cites examples such as traders buying contracts tied to NCAA tournament games, with winning positions paying out $1 and losing ones returning nothing. Additionally, the state points to the platforms' own marketing materials, such as Kalshi's claim of being 'The First Nationwide Legal Sports Betting Platform' and Polymarket's description as 'a platform where people can bet on the outcome of future events.' The structure of these prediction markets, according to the state, falls squarely within its definition of a bet, regardless of labeling or who takes the other side of the trade. The complaints also highlight that these platforms generate revenue by charging transaction fees on each contract, drawing a parallel to casinos taking a cut of wagers. The industry's defense is based 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 decision. However, state courts across the U.S. have been consistent in their opposition, with Nevada and New York taking stances that these contracts are essentially indistinguishable from gambling. Wisconsin's actions add to the growing list of state challenges, potentially forcing the Supreme Court to ultimately decide whether labeling something a financial contract is sufficient to distinguish it from a bet.