Wisconsin Sues Prediction Market Firms Over Betting Claims

TLDR

• Wisconsin filed lawsuits against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com over alleged illegal gambling activities.
• The state argues that event contracts offered by prediction market platforms qualify as bets under Wisconsin law.
• Attorney General Josh Kaul said companies cannot make unlawful conduct legal by changing product labels.
• The complaints cite platform marketing materials that describe services as sports betting or betting on future events.
• Wisconsin claims the companies earn revenue by charging transaction fees on each contract placed by users.

Wisconsin escalated its dispute with prediction market operators by filing lawsuits in state court. The complaints target Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com over alleged unlawful gambling. Attorney General Josh Kaul said companies cannot mask bets as financial products.

Wisconsin Challenges Prediction Market Model in Court

Wisconsin filed three complaints in Dane County against separate groups of companies. One complaint names Crypto.com and its derivatives arm over event contracts. Another targets Polymarket and related entities for offering outcome-based contracts to residents.

A third complaint names Kalshi and its distribution partners, Robinhood and Coinbase. The state alleges these platforms facilitate sports wagering for Wisconsin users. Prosecutors argue users pay money for outcome-based contracts that resemble bets.

The filings cite examples tied to NCAA tournament games offered on platforms. Traders buy contracts priced on implied probabilities of real-world outcomes. Winning positions pay $1, while losing positions pay nothing.

Kaul stated, “Thinly disguising unlawful conduct doesn’t make it lawful.” He said Wisconsin law defines such contracts as wagers. Therefore, he argues the structure meets the state’s statutory definition of a bet.

The complaints also reference company marketing materials and public statements. Kalshi’s Instagram described itself as “The First Nationwide Legal Sports Betting Platform.” Polymarket promoted itself as “a platform where people can bet on the outcome of future events.”

Prosecutors claim these statements support the gambling classification under Wisconsin statutes. They argue that platforms generate revenue by charging transaction fees on each contract. The state compares that model to a casino taking a cut of wagers.

Federal Oversight Clash Over CFTC Authority

The companies maintain that federal law governs their products. Kalshi argues its contracts qualify as swaps listed on a regulated exchange. It says the Commodity Futures Trading Commission holds exclusive jurisdiction.

The industry relies on federal preemption as its primary defense. Kalshi contends that CFTC oversight overrides conflicting state gambling rules. Therefore, it asserts that states cannot regulate federally approved event contracts.

Earlier this month, the Third Circuit ruled in Kalshi’s favor. The court treated the CFTC’s decision not to block the contracts as settling jurisdiction. That ruling strengthened the company’s federal preemption argument.

State officials across the country have taken a different stance. Nevada regulators called the contracts “indistinguishable” from gambling. New York Attorney General Letitia James said, “Each contract is a bet.”

Wisconsin now joins that line of state actions against prediction market operators. The complaints focus on state gambling definitions and marketing language. The cases remain pending in Dane County Circuit Court.

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