Wisconsin joins prediction market fight, suing Kalshi, Coinbase, Polymarket, Robinhood and Crypto.com
Prediction markets have been a topic of contention lately, with Wisconsin taking a firm stance against platforms like Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. The state has filed a new complaint, arguing that these companies are operating as unlicensed gambling venues, despite their claims that they offer financial instruments, not bets.
Attorney General Josh Kaul stated in a press release that “Thinly disguising unlawful conduct doesn’t make it lawful,” highlighting the core issue at hand. The question being debated is whether these contracts should be considered financial instruments regulated by the Commodity Futures Trading Commission (CFTC) or bets under state gambling laws. This distinction will determine whether prediction markets fall under federal regulation or are subject to individual state laws.
The complaints filed in Dane County target three main entities. Crypto.com and its derivatives arm, Polymarket and its affiliates, and Kalshi along with distribution partners Robinhood and Coinbase are all being accused of facilitating sports betting for Wisconsin residents. The state argues that the contracts offered by these platforms are essentially wagers, where users bet on real-world outcomes and receive fixed payouts if they are correct.
Wisconsin prosecutors point to marketing materials from Kalshi and Polymarket, which refer to their platforms as “legal sports betting” and places to “bet on the outcome of future events.” They argue that the revenue generated from transaction fees on each contract is akin to a casino taking a cut of wagers placed on its premises.
The industry’s defense hinges on federal preemption, with Kalshi in particular claiming that its contracts are regulated swaps falling under the jurisdiction of the CFTC. However, state courts across the country have consistently viewed these contracts as bets, with Nevada and New York both labeling them as such.
The legal battle surrounding prediction markets is heating up, with Wisconsin’s lawsuits adding to a growing list of state challenges. The ultimate decision may lie with the Supreme Court, as the question of whether calling something a financial contract is enough to exempt it from being treated as a bet remains unresolved. As this debate unfolds, the future of prediction markets hangs in the balance, with significant implications for the industry as a whole.
