Prediction markets have a consistent line: their products are financial instruments, not bets. Wisconsin isn’t buying it, and in a new complaint directed at Kalshi, Coinbase, Polymarket, Robinhood and Crypto.com, the state cites the companies’ own marketing to call them unlicensed gambling venues.
“Thinly disguising illegal conduct does not make it legal,” Attorney General Josh Kaul said in a news release announcing the allegations Thursday.
The question underlying the lawsuits is simple: Are these contracts financial instruments under the Commodity Futures Trading Commission (CFTC), or bets under state gambling law? The answer determines whether a fast-growing market operates under a single federal regulation or is divided into 50 states under the jurisdiction of local gaming regulators. And it will almost certainly go to the Supreme Court.
The Wisconsin complaints, filed in Dane County, target three parallel ecosystems.
One names Crypto.com and its derivatives arm. Another goes after Polymarket and affiliated entities. A third party appeals to Kalshi along with distribution partners Robinhood and Coinbase (both Robinhood and Coinbase direct prediction market orders to Kalshi), arguing that the platforms together make sports betting easier for state residents.
In all three, the legal theory is that so-called “event contracts” are bets: users pay money to take a position on a real-world outcome and receive a fixed payment if they are right.
In one example cited in the documents, traders could buy contracts tied to NCAA tournaments at prices that reflect implied probabilities, with winning positions paying $1 and losing positions returning nothing.
State prosecutors also cite Kalshi’s own Instagram ads, which claim the platform is “The First Legal National Sports Betting Platform,” and those of Polymarket, which calls itself “a platform where people can bet on the outcome of future events.”
The State argued that the structure of prediction markets fits perfectly within its legal definition of gambling, regardless of how the products are labeled or who handles the other side of the transaction.
The complaints also emphasize that the platforms generate revenue by charging transaction fees on each contract, comparing the model to a casino that takes a cut of the bets placed on its floor.
Preparing a fight for federalism
Industry defense is based on federal preference. Kalshi, in particular, has argued that its contracts are swaps that trade on a regulated exchange and therefore fall under the exclusive jurisdiction of the CFTC.
That position got a boost earlier this month when the Third Circuit sided with the company, viewing the regulator’s decision not to block the contracts as an effective solution to the jurisdictional question.
Across the United States, state courts are consistent in taking a different position.
Nevada called the contracts “indistinguishable” from gambling. New York AG Letitia James said “every contract is a gamble.”
For now, Wisconsin’s lawsuits add to a growing list of state challenges, each creating a record that could ultimately force the U.S. Supreme Court to decide whether calling something a financial contract is enough to prevent it from being treated as a gamble.
