Wisconsin Takes on Prediction Markets, Files Lawsuits Against Multiple Companies

The prediction market industry consistently claims its products are legitimate financial instruments, but Wisconsin disagrees. In a recent complaint filed against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, the state argues that these platforms are, in fact, facilitating unlawful gambling activities. According to Wisconsin Attorney General Josh Kaul, 'disguising illegal conduct as something lawful does not make it legitimate.' The core issue at hand is whether the contracts offered by these platforms should be considered financial instruments under federal regulation or bets subject to state gaming laws. This distinction will determine whether the industry operates under a unified federal framework or is subject to varying state regulations. The matter is likely to be decided by the Supreme Court. 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's legal argument is 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 cite 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 claim 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.' Wisconsin argues that the structure of these prediction markets falls within its statutory definition of a bet, regardless of how the products are labeled. The complaints further emphasize that these 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 swaps listed on a regulated exchange and thus fall under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC). However, state courts have consistently taken a different stance, with Nevada and New York both characterizing these contracts as indistinguishable from gambling. Wisconsin's lawsuits contribute to a growing list of state challenges, which may ultimately force the Supreme Court to decide whether labeling something as a financial contract is enough to exempt it from being treated as a bet.