Wisconsin Takes on Prediction Market Platforms in Lawsuit Against Kalshi, Coinbase, and Others

The prediction market industry has long maintained that its products are legitimate financial instruments, rather than mere bets. However, Wisconsin is contesting this claim, and in a recent lawsuit against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com, the state is using the companies' own marketing materials to argue that they are operating as unlicensed gambling venues. According to Wisconsin Attorney General Josh Kaul, 'disguising unlawful conduct as something legitimate does not make it lawful.' The lawsuits raise a fundamental question: do these contracts constitute financial instruments under the Commodity Futures Trading Commission, or are they simply bets subject to state gambling laws? This distinction will determine whether the rapidly expanding market will be regulated at the federal level or fragmented across 50 states, with each state having its own set of rules. The issue is likely to be decided by the Supreme Court. Wisconsin's complaints target three main platforms: Crypto.com and its derivatives arm, Polymarket and its affiliated entities, and Kalshi, along with its distribution partners Robinhood and Coinbase. The state argues 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 fixed payout if they are correct. For example, users could buy 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 advertising, 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's argument is that the structure of these prediction markets falls squarely within the state's 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 the 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 therefore fall under the CFTC's exclusive jurisdiction. However, state courts have consistently taken a different position, with Nevada and New York both characterizing the contracts as indistinguishable from gambling. The Wisconsin lawsuits add to a growing list of state challenges, which may ultimately force the Supreme Court to decide whether labeling something a financial contract is enough to exempt it from being treated as a bet.