Wisconsin Takes on Prediction Market Giants in Lawsuit

The prediction market sector has consistently maintained that its offerings are legitimate financial instruments, rather than mere bets. However, Wisconsin has expressed its skepticism, filing a lawsuit against major players such as Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, citing their own marketing materials as evidence of unlicensed gambling operations. According to Attorney General Josh Kaul, 'disguising unlawful activities as lawful ones does not make them so.' The core issue at hand is whether these contracts constitute financial instruments under the Commodity Futures Trading Commission or bets under state law, a question that may ultimately be decided by the Supreme Court. Wisconsin's complaints, filed in Dane County, target multiple entities, including Crypto.com, Polymarket, and Kalshi, alongside its distribution partners Robinhood and Coinbase. The state argues that 'event contracts' are, in essence, wagers, where users pay to take a position on a real-world outcome and receive a fixed payout if they are correct. Examples cited in the filings include traders buying contracts tied to NCAA tournament games, with winning positions paying out $1 and losing ones returning nothing. The state also points to Kalshi's Instagram ads, which claim the platform is 'The First Nationwide Legal Sports Betting Platform,' and Polymarket's, which describes itself as 'a platform where people can bet on the outcome of future events.' Wisconsin contends that the structure of prediction markets aligns with its statutory definition of a bet, regardless of labeling or who takes the other side of the trade. The complaints further emphasize 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, thus falling under the CFTC's exclusive jurisdiction. This position received support from the Third Circuit earlier this month. Nevertheless, state courts across the US have consistently taken a different stance, with Nevada and New York both likening the contracts to gambling. Wisconsin's lawsuits contribute to a growing list of state challenges, building a record that may ultimately prompt the Supreme Court to decide whether labeling something a financial contract is sufficient to distinguish it from a bet.