Kentucky Escalates Legal Fight Against Kalshi and Polymarket Over Sports Prediction Markets
Kentucky authorities have taken legal action against prediction market operators Kalshi and Polymarket, accusing the platforms of offering unauthorized sports wagering services in the state without the required licenses.
In an announcement on Wednesday, Kentucky Attorney General Russell Coleman revealed that three separate lawsuits had been filed. One targets Kalshi and its affiliates, including Coinbase, another is directed at Polymarket and associated entities, while a third focuses on online gaming operator VGW.
State officials argue that both Kalshi and Polymarket are effectively functioning as sportsbooks under a different label. According to the lawsuits, the platforms provide betting opportunities that closely resemble traditional sports gambling products, despite describing them as event-based contracts.
Coleman criticized the companies’ business models, stating that rebranding wagers as prediction contracts does not exempt them from Kentucky’s gambling regulations. The state contends that these firms are avoiding consumer protection requirements, licensing obligations, and tax rules that apply to legal sportsbooks operating within Kentucky.
The complaint against Kalshi also names Coinbase, alleging that the crypto exchange shared in transaction-related fees connected to prediction market activity. Meanwhile, Robinhood and Webull were referenced as entities associated with Polymarket’s offerings.
Kentucky’s lawsuits add to a growing conflict between state regulators and federal authorities over the oversight of prediction markets. More than a dozen states have challenged sports-related event contracts, arguing that they violate local gambling laws. In contrast, the Commodity Futures Trading Commission (CFTC) maintains that federally regulated prediction market platforms fall under its authority through the Commodity Exchange Act, limiting states’ ability to impose restrictions.
The debate intensified last week when the CFTC proposed regulatory changes that would largely support sports-related event contracts while discouraging markets tied to issues such as terrorism, assassinations, and armed conflicts. The agency suggested that sports contracts possess characteristics that may make them consistent with the public interest.
However, legal uncertainty remains. A federal judge in Michigan recently denied Polymarket’s request for a preliminary injunction against state regulators. The court concluded that sports prediction contracts do not qualify as swaps, a determination that weakens claims of exclusive CFTC oversight and allows Michigan to move forward with restrictions on sports-related markets. Polymarket has since appealed the ruling to the Sixth Circuit Court of Appeals.
Beyond regulators, traditional gaming interests are also entering the debate. Reports indicate that major U.S. gaming industry organizations have urged lawmakers to include provisions in pending federal legislation that would prohibit sports event contracts altogether.
As lawsuits multiply and courts weigh competing interpretations of federal and state authority, the future regulatory framework for sports prediction markets remains uncertain, with significant implications for both the crypto industry and online wagering sector.