In a significant legal move, Wisconsin has taken aim at prediction markets by filing complaints against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com. The state’s argument hinges on the assertion that these companies are operating unlicensed gambling platforms, despite their claims of offering financial instruments.
Attorney General Josh Kaul emphasized this point in a press release, stating, “Thinly disguising unlawful conduct doesn’t make it lawful.” At the heart of Wisconsin’s legal action is a pivotal question: Do these contracts fall under the jurisdiction of the Commodity Futures Trading Commission (CFTC) as financial instruments, or are they subject to state gambling laws?
The implications of this decision extend beyond Wisconsin. If deemed bets, such markets would be regulated by each state’s gaming authorities. Conversely, if considered financial products, a single federal rulebook would apply nationwide. This legal ambiguity is likely to escalate to the Supreme Court.
Filing in Dane County, Wisconsin’s complaints target three distinct ecosystems: Crypto.com and its derivatives, Polymarket with affiliated entities, and Kalshi alongside distribution partners Robinhood and Coinbase, which route orders to Kalshi, purportedly facilitating sports betting for residents.
The state’s legal stance is that “event contracts” are essentially wagers, where users pay to speculate on real-world outcomes, receiving fixed payouts if correct. An example includes contracts tied to NCAA tournament games, with traders buying at prices reflecting implied probabilities and winning positions paying out $1.
Wisconsin highlights Kalshi’s Instagram ads promoting itself as “The First Nationwide Legal Sports Betting Platform,” and Polymarket’s description of its service for betting on future events. According to the state, this structure fits within its definition of a bet, regardless of how these products are marketed or who takes the other side.
Moreover, Wisconsin points out that platforms earn revenue by charging transaction fees on each contract, similar to casinos taking cuts from wagers.
The industry’s defense leans on federal preemption. Kalshi argues that its contracts, being swaps listed on a regulated exchange, fall under CFTC jurisdiction. This stance gained traction when the Third Circuit sided with Kalshi recently, interpreting regulatory inaction as settling the jurisdictional debate.
However, state courts across America, including Nevada and New York, have consistently disagreed. Nevada found these contracts indistinguishable from gambling, while New York AG Letitia James labeled each contract a bet.
Wisconsin’s lawsuits contribute to mounting state-level challenges, potentially setting up a Supreme Court decision on whether labeling something as a financial contract exempts it from being treated as a bet.