Prediction markets have a consistent line: their products are financial instruments, not bets. Wisconsin isn’t buying it, and in a new complaint against Kalshi, Coinbase, Polymarket, Robinhood and Crypto.com, the state cites the companies’ own marketing to call them unlicensed gambling venues.
“Thinly veiled illegal conduct does not make it legal,” Attorney General Josh Kaul said in a news release announcing the complaints Thursday.
The question in the lawsuits is straightforward: are these contracts financial instruments under the Commodity Futures Trading Commission (CFTC) or bets under state gambling laws? The answer determines whether a fast-growing market operates under a single federal rulebook or is carved across 50 states under the jurisdiction of local gaming regulators. And it is almost certainly on its way to the Supreme Court.
Wisconsin’s complaints, filed in Dane County, target three parallel ecosystems.
One names Crypto.com and its derivative arm. Another goes after Polymarket and associated entities. A third draws in Kalshi along with distribution partners Robinhood and Coinbase (both Robinhood and Coinbase route predictive market orders to Kalshi), arguing that the platforms together facilitate national sports betting.
Across all three, the legal theory is that so-called “event contracts” are bets: users pay money to bet on a real-world outcome and receive a fixed payout if they’re correct.
In one example cited in the filings, traders could buy contracts tied to NCAA tournament games at prices that reflect implied probabilities, with winning positions paying out $1 and losing ones returning nothing.
State prosecutors also cite Kalshi’s own Instagram ads, which claim the platform is “The first nationwide legal sports betting platform,” and Polymarkets, which calls itself “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 statutory definition of a wager, regardless of how the products are labeled or who takes the other side of the trade.
The plaintiffs also emphasize that platforms generate revenue by charging transaction fees on each contract, comparing the model to a casino taking a cut of bets placed on the floor.
Establishing a federalism struggle
The industry’s defense rests on federal preemption. In particular, Kalshi has argued that its contracts are swaps listed 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, treating the regulator’s decision not to block the contracts as an effective resolution of the jurisdictional issue.
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 that “every contract is a bet.”
For now, Wisconsin’s suits add to a growing list of state challenges, each building a record that could eventually force the U.S. Supreme Court to decide whether calling something a financial contract is enough to prevent it from being treated as a wager.
