Wisconsin Takes on Prediction Markets, Sues Multiple Companies Over Alleged Unlicensed Gambling

The prediction market industry has consistently argued that its products are legitimate financial instruments, rather than bets. However, the state of Wisconsin is now challenging this claim, filing a lawsuit against several major companies, including Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. According to Wisconsin's Attorney General Josh Kaul, the companies' marketing materials reveal that they are, in fact, operating unlicensed gambling venues. The lawsuit centers on the question of whether prediction market contracts should be considered financial instruments under federal law or bets under state law. This distinction is crucial, as it will determine whether the industry is subject to a single set of federal regulations or will be regulated by individual states. The case is likely to eventually make its way to the Supreme Court. Wisconsin's lawsuit targets three separate ecosystems, naming Crypto.com, Polymarket, and Kalshi, among others. The state argues that the companies' so-called 'event contracts' are, in reality, wagers, and that users are essentially betting on real-world outcomes. The lawsuit cites examples of traders buying contracts tied to NCAA tournament games, with winning positions paying out a fixed amount and losing ones returning nothing. The state also points to the companies' own marketing materials, including Instagram ads that describe the platforms as 'sports betting' or 'betting on the outcome of future events.' The industry's defense relies on the claim that its contracts are regulated by the Commodity Futures Trading Commission (CFTC) and are therefore exempt from state law. However, state courts have consistently taken a different view, with Nevada and New York both characterizing the contracts as 'indistinguishable' from gambling or 'bets.' The outcome of Wisconsin's lawsuit will likely have significant implications for the future of the prediction market industry.