Wisconsin Takes on Prediction Markets, Files Lawsuits Against Multiple Companies

The prediction market industry has long maintained that its products are legitimate financial instruments, rather than mere bets. However, Wisconsin has taken a different stance, filing a complaint against several 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 hand is whether these contracts should be considered financial instruments under the jurisdiction of the Commodity Futures Trading Commission (CFTC) or if they constitute bets under state gambling laws. This distinction is crucial, as it will determine whether the industry operates under a single federal rulebook or is subject to the regulations of 50 individual states. The case is likely to end up in the Supreme Court. Wisconsin's complaints, filed in Dane County, target three separate ecosystems: one involving Crypto.com and its derivatives arm, another focusing on Polymarket and its affiliates, and a third targeting Kalshi alongside its distribution partners Robinhood and Coinbase. The legal argument presented is that 'event contracts' offered by these platforms are essentially wagers, where users pay to take a position on a real-world outcome and receive a fixed payout if they are correct. The state cites examples of 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 companies' 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 state argues that the structure of these prediction markets falls within its statutory definition of a bet, regardless of how the products are labeled 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, similar to a casino taking a cut of wagers placed on its floor. 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 support from the Third Circuit earlier this month. However, state courts across the U.S. have consistently taken a different stance, with Nevada describing the contracts as 'indistinguishable' from gambling and New York AG Letitia James stating that 'each contract is a bet.' For now, Wisconsin's suits contribute to a growing list of state challenges, building a record that could ultimately force the Supreme Court to decide whether labeling something a financial contract is enough to prevent it from being treated as a bet.