In a significant legal challenge, Wisconsin is stepping up efforts to regulate what it perceives as unlicensed gambling operations by targeting several well-known companies involved in prediction markets. The action, which was announced by Attorney General Josh Kaul, includes complaints against platforms such as Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com.
The heart of the legal dispute revolves around whether the contracts offered by these companies are categorized as financial instruments under the jurisdiction of the Commodity Futures Trading Commission (CFTC) or as bets under state gambling laws. This determination is crucial as it could define whether these rapidly growing markets will be governed by a single federal regulatory framework or be subjected to the varying rules across all 50 states.
Wisconsin’s complaints, filed in Dane County, target entities across three main categories: one involving Crypto.com and its derivatives, another focusing on Polymarket and its affiliates, and a third that includes Kalshi along with its distribution partners Robinhood and Coinbase. These complaints assert that the platforms collectively facilitate sports betting for residents of Wisconsin.
Underpinning the legal arguments is the assertion that the so-called “event contracts” function as wagers. Users are said to pay money to take positions on real-world outcomes, with payouts based on their success in predicting those outcomes. For example, traders might purchase contracts linked to NCAA tournament results, where winning bets yield a payout of $1, in stark contrast to losing bets which return nothing.
The state additionally highlights that the marketing language of these companies supports their argument. For instance, Kalshi has promoted itself through social media as “The First Nationwide Legal Sports Betting Platform,” while Polymarket markets itself as a venue for betting on future events. These characterizations, Wisconsin argues, align with the state’s legal definition of a bet, challenging the companies’ attempts to classify their offerings differently.
Furthermore, state prosecutors point out that these platforms generate revenue by charging transaction fees on each contract, drawing parallels to the practices of casinos that take a cut from wagers made on their premises. This business model further bolsters Wisconsin’s position that prediction markets resemble gambling operations, irrespective of their labeling.
The industry’s defense is grounded in the principle of federal preemption, particularly asserted by Kalshi. The company claims that its contracts are structured as swaps listed on a regulated exchange, which would place them squarely under the CFTC’s jurisdiction. This perspective gained some judicial support earlier this month when the Third Circuit ruled in favor of Kalshi, suggesting that the CFTC’s lack of action regarding the contracts effectively determined the jurisdictional question.
However, state courts across the nation have taken a distinct stance. Nevada recently referred to these contracts as “indistinguishable” from gambling, while New York Attorney General Letitia James asserted that “each contract is a bet.”
With Wisconsin’s recent legal maneuvers adding to a growing body of state-level challenges, the situation appears poised for an escalation that could lead to a significant ruling from the Supreme Court of the United States. The ultimate question remains whether the mere labeling of a financial contract is sufficient to prevent it from being classified as a bet under state law, a determination that could dramatically reshape the regulatory landscape for prediction markets in the United States.
