Wisconsin Takes on Prediction Markets, Sues Multiple Companies Over Alleged Unlicensed Gambling

The prediction market industry has consistently maintained that its offerings are legitimate financial instruments, not mere bets. However, Wisconsin has expressed its skepticism and filed a lawsuit against several prominent companies, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, alleging that they are operating as unlicensed gambling venues. According to Wisconsin Attorney General Josh Kaul, 'attempting to disguise unlawful activities as lawful ones does not make them so.' The core issue at stake is whether these platforms' contracts constitute financial instruments under the purview of the Commodity Futures Trading Commission (CFTC) or are instead tantamount to bets under state gaming laws. This question has significant implications, as it will determine whether the rapidly growing prediction market operates under a unified federal regulatory framework or is subject to a patchwork of state-level regulations. The matter is likely to be ultimately decided by the Supreme Court. Wisconsin's lawsuits, filed in Dane County, target three distinct ecosystems. One lawsuit names Crypto.com and its derivatives arm, while another targets Polymarket and its affiliated entities. The third lawsuit involves Kalshi, as well as its distribution partners Robinhood and Coinbase, alleging that these platforms collectively facilitate sports betting for Wisconsin residents. The state's legal argument is that the so-called 'event contracts' offered by these platforms are, in essence, wagers, wherein users pay to take a position on a real-world outcome and receive a fixed payout if they are correct. For instance, traders could purchase contracts tied to NCAA tournament games, with prices reflecting implied probabilities, and receive a payout of $1 for winning positions, while losing positions would result in no payout. The state also cites the companies' own marketing materials, such as Kalshi's Instagram ads, which describe the platform as 'The First Nationwide Legal Sports Betting Platform,' and Polymarket's ads, which characterize the platform as a place where people can 'bet on the outcome of future events.' The state argues that the structure of prediction markets falls squarely within its statutory definition of a bet, regardless of how the products are labeled or who takes the opposing side of the trade. Furthermore, the state notes that these platforms generate revenue by charging transaction fees on each contract, drawing a parallel with casinos, which take a cut of wagers placed on their premises. 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. This position received a boost when the Third Circuit ruled in the company's favor, effectively settling the jurisdictional question. Nevertheless, state courts across the United States have consistently taken a different stance, with Nevada describing the contracts as 'indistinguishable' from gambling and New York Attorney General Letitia James stating that 'each contract is a bet.' For the time being, Wisconsin's lawsuits contribute to a growing list of state-level challenges, each building a record that could ultimately prompt the Supreme Court to decide whether labeling something a financial contract is sufficient to preclude it from being treated as a bet.