Kentucky’s Attorney General, Russell Coleman, has taken legal action against Kalshi, Polymarket, and several associated partners, alleging they are conducting unlicensed sports betting operations within the state. The lawsuits, filed in Franklin Circuit Court, claim that these platforms offer markets tied to game outcomes, point spreads, and player statistics without a Kentucky gaming license. Coleman stated, ‘Kalshi and Polymarket are operating illegal sportsbooks in Kentucky and breaking our laws.’ The case also includes Coinbase, Robinhood, and Webull, which Kentucky argues facilitated access to sports event contracts for users.
The state asserts that these products fall under its definition of sports wagering, even though the platforms classify them as event contracts. According to Kentucky, users can place trades on outcomes similar to wagers offered by licensed sportsbooks, such as money lines, spreads, and prop-style markets. The attorney general’s office also criticized the platforms for lacking adequate tools for users with gambling problems, which is required by state law for licensed operators.
Kalshi and Polymarket have countered by arguing that their products are governed by federal commodities law, not state gambling regulations. A Kalshi spokesperson emphasized, ‘The CFTC is our regulator, not the states.’ Polymarket echoed this sentiment, stating that Kentucky’s lawsuit contradicts the CFTC’s framework for prediction markets and pledged to defend against the claims legally. Both companies maintain that state licensing rules should not apply to contracts under federal commodities oversight.
This legal battle is part of a broader nationwide conflict. Multiple states, including Montana, Nevada, New York, and others, have sent cease-and-desist letters or taken legal actions against prediction market operators. Meanwhile, the CFTC has supported federal oversight, suing states to assert its authority over event contracts traded on federally regulated exchanges. Court rulings have been inconsistent, with some siding with platforms and others allowing state cases to proceed. For users, the outcomes will determine which regulatory framework these platforms must comply with when offering sports-related markets.
Adding another layer, Kentucky is also disputing a tax matter with prediction market firms. A coalition including Kalshi, Crypto.com, and Polymarket challenged a new 14.25% tax on prediction market transaction fees, arguing it unfairly targets federally regulated markets. The tax dispute remains separate from the gambling lawsuits. Meanwhile, trading volumes and product offerings continue to expand, with Kalshi recently launching crypto-linked perpetual futures and reporting over $5.5 billion in volume within two weeks. Compliance concerns are also rising, as Kalshi partnered with StarCompliance to help financial firms monitor employee prediction market trades.