Prediction markets have a consistent line: their products are financial instruments, not bets. Wisconsin isn’t buying it, and in a new complaint targeting Kalshi, Coinbase, Polymarket, Robinhood and Crypto.com, the state cites those companies’ own marketing to call them unlicensed gambling sites.
“Barely disguising illegal conduct does not make it legal,” Attorney General Josh Kaul said Thursday in a news release announcing the complaints.
The question behind these lawsuits is simple: are these contracts financial instruments under the Commodity Futures Trading Commission (CFTC), or bets under the National Gambling Act? The answer determines whether a fast-growing market operates under a single federal regulation or whether it is divided into 50 states under the jurisdiction of local gambling regulators. And it will almost certainly head to the Supreme Court.
The Wisconsin complaints, filed in Dane County, target three parallel ecosystems.
One names Crypto.com and its derivatives arm. Another attacks Polymarket and affiliated entities. A third draws Kalshi alongside distribution partners Robinhood and Coinbase (both Robinhood and Coinbase route prediction market orders to Kalshi), arguing that the platforms together facilitate sports betting for state residents.
In all three cases, the legal theory is that “event contracts” are bets: users pay money to take a position on an actual outcome and receive a fixed payment if they are right.
In one example cited in the filings, traders could purchase contracts tied to NCAA tournament games at prices that reflect implied probabilities, with winning positions earning $1 and losing positions earning nothing.
State prosecutors also cite Kalshi’s own Instagram ads, which claim the platform is “the nation’s first legal sports betting platform,” and that of Polymarket, which bills itself as “a platform where people can bet on the outcome of future events.”
The state argued that the structure of prediction markets falls squarely within its legal definition of a bet, regardless of how the products are labeled or who takes the other side of the exchange.
The complaints also highlight that the platforms generate revenue by charging transaction fees on each contract, which compares the model to a casino taking a cut of the bets placed on its floor.
Implement a fight against federalism
The industry’s defense relies on federal government preemption. Kalshi, in particular, argued that its contracts are swaps listed on a regulated exchange and therefore fall within the exclusive jurisdiction of the CFTC.
That position was reinforced earlier this month when the Third Circuit sided with the company, viewing the regulator’s decision not to block the contracts as effectively settling the jurisdictional question.
In the United States, state courts consistently take 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 join a growing list of state challenges, each of which sets 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 bet.
