Wisconsin Takes on Prediction Market Giants in Lawsuit

The prediction market industry has long maintained that its products are legitimate financial tools, not wagers. However, Wisconsin has filed a lawsuit against several major players, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, arguing that their marketing materials reveal a different story. According to Attorney General Josh Kaul, 'disguising unlawful activities does not make them lawful.' The lawsuit centers on the question of whether these platforms offer financial instruments or bets, which will determine whether they fall under federal or state jurisdiction. Wisconsin's complaints target three separate ecosystems, including Crypto.com, Polymarket, and Kalshi, which partners with 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 lawsuit cites examples of 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 marketing materials, such as Kalshi's Instagram ads claiming to be 'The First Nationwide Legal Sports Betting Platform,' and Polymarket's description of itself as 'a platform where people can bet on the outcome of future events.' The industry's defense relies on federal preemption, with Kalshi arguing that its contracts are swaps listed on a regulated exchange and therefore fall under the CFTC's exclusive jurisdiction. However, state courts have consistently taken a different position, with Nevada and New York characterizing the contracts as 'indistinguishable' from gambling and 'bets,' respectively. The Wisconsin lawsuit adds to a growing list of state challenges, which may ultimately lead to a Supreme Court decision on whether the prediction market industry's claims of offering financial instruments are sufficient to exempt them from being treated as bets.