Wisconsin Takes on Prediction Markets, Files Lawsuits Against Multiple Companies

Prediction market operators have consistently claimed that their products are legitimate financial instruments, rather than mere bets. However, Wisconsin has taken a stance against this notion, filing complaints against several prominent companies, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. The state's Attorney General, Josh Kaul, stated that 'disguising unlawful conduct as lawful does not make it so.' The central issue at hand is whether these contracts constitute financial instruments under the purview of the Commodity Futures Trading Commission (CFTC) or if they are, in fact, bets subject to state gambling laws. This distinction will determine whether the rapidly growing prediction market will be regulated by a single federal entity or fragmented across 50 states, with each state's gaming regulators having jurisdiction. This case is likely to be appealed all the way to the Supreme Court. Wisconsin's complaints, filed in Dane County, target three distinct ecosystems: one involving Crypto.com and its derivatives arm, another targeting Polymarket and its affiliated entities, and a third involving Kalshi, alongside distribution partners Robinhood and Coinbase. The legal argument presented is that so-called 'event contracts' are essentially wagers, where users pay to take a position on a real-world outcome, receiving 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. State prosecutors also point to marketing materials from Kalshi and Polymarket, which explicitly describe their platforms as facilitating sports betting. The state argues that the structure of prediction markets falls within its statutory definition of a bet, regardless of labeling or the counterparty to 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, thus falling under the CFTC's exclusive jurisdiction. However, state courts have consistently taken a different stance, with Nevada and New York both characterizing these contracts as indistinguishable from gambling. Wisconsin's lawsuits contribute to a growing list of state challenges, which may ultimately force the Supreme Court to decide whether labeling something a financial contract is sufficient to distinguish it from a bet.