Wisconsin Takes on Prediction Market Operators in Lawsuit

Prediction market operators consistently claim that their offerings are legitimate financial instruments, but Wisconsin disagrees. In a recent complaint filed against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, the state argues that the companies' marketing materials reveal their true nature as unlicensed gambling venues. According to Wisconsin Attorney General Josh Kaul, 'merely disguising illicit activities does not render them lawful.' The core issue at stake is 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 question has significant implications, as it will determine whether the rapidly growing prediction market will be regulated at the federal level or fragmented across 50 states under local gaming regulations. The matter is likely to be resolved by the Supreme Court. Wisconsin's complaints target three distinct ecosystems, naming Crypto.com, Polymarket, and Kalshi, along with its distribution partners Robinhood and Coinbase. The state's legal argument is that the so-called 'event contracts' offered by these platforms are, in fact, wagers, where users pay to take a position on a real-world outcome and receive a fixed 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. State prosecutors also point 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 state argues that the structure of prediction markets falls squarely within its statutory definition of a bet, regardless of how the products are labeled. The complaints also highlight that platforms generate revenue by charging transaction fees on each contract, 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 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. Wisconsin's lawsuits contribute to a growing list of state challenges, which may ultimately compel the Supreme Court to decide whether labeling something a financial contract is sufficient to distinguish it from a bet.