Kentucky sues Kalshi, Polymarket and partners over sports betting

Kentucky filed lawsuits in state court on Wednesday against five prediction market platforms, including Kalshi and Polymarket. The state named Coinbase, Robinhood and Webull as Kalshi partners and alleges the companies operate unlicensed sports betting in Kentucky.

Attorney General Russell Coleman accused the platforms of “operating unlicensed and illegal sports betting and gambling platforms,” arguing that sports-related event contracts meet Kentucky’s legal definition of sports wagering. The complaints say the platforms are doing business without a Kentucky gaming license and are not providing required resources for people with gambling problems.

The lawsuits seek orders to stop the platforms from offering illegal wagering in the state and to enforce licensing and consumer-protection rules. The filings follow a separate case in which the platforms sued Kentucky over a 14.25% tax on prediction market transaction fees, which the companies say discriminates against federally regulated exchanges.

The suits are part of broader litigation between state regulators and prediction market operators. At least 17 states have issued cease-and-desist letters or filed suits against such platforms. The Commodity Futures Trading Commission has sued eight states, asserting federal jurisdiction over prediction markets and their contracts.

Polymarket described Kentucky’s complaint as contrary to the CFTC’s regulatory framework and said it will address the claims in court. Kalshi stated it is a federally regulated exchange overseen by the CFTC and expressed confidence that courts will uphold federal oversight.

Courts have reached mixed decisions so far. A federal judge in Michigan ruled against Polymarket, finding some sports event contracts are not swaps under the CFTC’s authority. The Third Circuit in April ruled that New Jersey regulators could not bar Kalshi from offering sports contracts in that state.

Kalshi and Polymarket reported about $25 billion in trading volume in May, according to market data, and state enforcement actions could limit access to major U.S. markets. The Kentucky complaints quote a lawmaker’s remark: “If it looks like a duck and quacks like a duck…” and allege the platforms offer “few or no resources” for problem gambling.

The central legal question is whether specific event contracts qualify as swaps under federal commodities law or as state-regulated sports wagering when tied to sports results. Upcoming court decisions will determine whether state gaming authorities or the CFTC regulate event-based trading.