Wisconsin Takes on Prediction Market Giants in Lawsuit

The prediction market industry has consistently maintained that its products are legitimate financial tools, not wagers. However, Wisconsin has filed a complaint against major players Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, arguing that their marketing materials reveal a different story. According to Wisconsin Attorney General Josh Kaul, 'masquerading as lawful conduct does not make it so.' The core issue revolves around whether these contracts should be classified as financial instruments under the Commodity Futures Trading Commission (CFTC) or as bets subject to state gambling laws. This dispute is likely to be settled by the Supreme Court. Wisconsin's complaints target three distinct ecosystems: Crypto.com and its derivatives arm, Polymarket and affiliated entities, and Kalshi along with distribution partners Robinhood and Coinbase. The state's legal argument is that 'event contracts' are essentially wagers, where users pay to take a position on a real-world outcome and receive a payout if they are correct. Examples cited in the filings include 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 platforms' own advertising, 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.' Wisconsin argues that the structure of prediction markets aligns with its definition of a bet, regardless of labeling or counterparty. The complaints also highlight that platforms generate revenue by charging 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 under the CFTC's jurisdiction. However, state courts have consistently taken a different stance, with Nevada and New York characterizing the contracts as indistinguishable from gambling. Wisconsin's suits contribute to a growing list of state challenges, building a record that may ultimately require the Supreme Court to decide whether labeling something a financial contract is sufficient to distinguish it from a bet.