Key Moments:
- Wisconsin has initiated lawsuits against Kalshi, Coinbase, Polymarket, Robinhood, and Crypto.com concerning event-driven contracts
- The central issue revolves around whether such products are categorized as illegal gambling under state law or regulated as derivatives federally
- Wisconsin’s case could influence how prediction market contracts are classified nationwide
State-Level Legal Challenge Targets Event Contracts
Wisconsin has intensified its efforts against prediction market entities by filing lawsuits in Dane County. The state has targeted Crypto.com and its derivatives branch, Polymarket and related organizations, as well as Kalshi, with distribution involvement from Robinhood and Coinbase. The crux of Wisconsin’s argument is that users engage in activities that constitute wagering, since participants stake money on real-world outcomes and stand to receive rewards or lose their stakes as events unfold. For instance, contracts based on NCAA tournament games are referenced, where buyers pay the contract price, win $1 for correct predictions, or receive nothing if incorrect.
According to a statement from Attorney General Josh Kaul, “Simply concealing illegal behavior does not make it legal.” The state notes examples of marketing language such as Kalshi’s advertisement on Instagram that describes the platform as the first nationwide legal sports betting platform, and Polymarket’s promotion as a site where people can wager on future events, to argue that these offerings function as betting products.
Furthermore, the complaint contends that these platforms mimic the business model of casinos, not just through the structure of the contracts, but also by earning fees on every transaction. Regardless of the terminology or counterparties involved, Wisconsin asserts that the underlying structure meets the state’s legal criteria for a bet.
Jurisdictional Dispute Draws National Attention
The lawsuits highlight an unresolved question facing the industry: should state-by-state gambling regulations apply to prediction markets, or should a federal regime oversee these products? This jurisdictional issue is pivotal, as companies maintain that their contracts are financial instruments rather than traditional gambling products.
Kalshi responds by arguing that its contracts constitute swaps offered through a regulated exchange, thereby falling under the exclusive authority of the Commodity Futures Trading Commission (CFTC). A decision earlier in the month from the Third Circuit supported Kalshi’s position by accepting the regulator’s decision not to intervene as resolving the jurisdictional question.
Other States’ Perspectives and Legal Ramifications
Views across other states vary. New York Attorney General Letitia James has taken the position that every such contract is a wager, whereas regulators in Nevada equate these transactions with gambling. Wisconsin’s action adds to ongoing state-level disputes, which may collectively push the issue toward consideration by the U.S. Supreme Court. The outcome could determine whether event-based products structured as financial contracts are exempt from state gambling statutes.
An additional highlight from previous coverage notes that in the Polymarket case, U.S. authorities accused an Army Master Sergeant of betting on prediction-market contracts using privileged knowledge about an operation in Venezuela. This situation was characterized as insider trading in cryptocurrency-based contracts, underscoring the increasing risks associated with the use of nonpublic information in this space.
Companies Named in Wisconsin’s Lawsuit
| Company | Involvement |
|---|---|
| Kalshi | Event contract provider |
| Coinbase | Contract distribution partner |
| Polymarket | Prediction market provider |
| Robinhood | Distribution partner |
| Crypto.com | Platform and derivatives division |
- Author
Daniel Williams
