Wisconsin Takes on Prediction Market Giants in Lawsuit

The prediction market industry has consistently maintained that its products are legitimate financial instruments, rather than mere bets. However, Wisconsin has taken a firm stance against this claim, filing a complaint against several major players, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. According to Wisconsin Attorney General Josh Kaul, 'merely disguising illicit activities does not render them lawful.' The lawsuit centers on the question of whether these platforms offer financial instruments regulated by the Commodity Futures Trading Commission (CFTC) or if they constitute bets subject to state gaming laws. This dispute is likely to be decided by the Supreme Court. The complaints, filed in Dane County, target three separate ecosystems: one involving Crypto.com and its derivatives arm, another focusing on Polymarket and affiliated entities, and a third targeting Kalshi and its distribution partners, Robinhood and Coinbase. The legal argument is that '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. As an example, the filings cite traders buying contracts tied to NCAA tournament games, with winning positions paying out $1 and losing ones returning nothing. State prosecutors point to Kalshi's Instagram ads, which describe the platform as 'The First Nationwide Legal Sports Betting Platform,' and Polymarket's ads, which call it 'a platform where people can bet on the outcome of future events.' The state contends that the structure of prediction markets fits squarely within its statutory definition of a bet, regardless of labeling 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. 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 CFTC's exclusive jurisdiction. This position was recently bolstered by a Third Circuit ruling. However, state courts across the U.S. have consistently taken a different stance, with Nevada and New York both characterizing the contracts as indistinguishable from gambling. Wisconsin's suits 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.