Kentucky Attorney General Russell Coleman announced three separate lawsuits targeting prediction market operators Kalshi and Polymarket, as well as online casino platform VGW. The lawsuits were filed in Franklin Circuit Court and accuse the companies of offering sports related betting products without obtaining the licenses required under Kentucky law.
According to the state, the platforms have created a system that mirrors traditional sports betting while avoiding state gaming regulations, consumer protection requirements, and tax obligations.
Kentucky Says Prediction Markets Resemble Sportsbooks
At the center of the dispute are sports event contracts that allow users to trade on outcomes of sporting events. Kentucky argues these products are effectively sports wagers regardless of how they are labeled.
State officials claim users can trade contracts tied to game winners, point spreads, player statistics, point totals, parlays, and prop style bets. Kentucky maintains that these offerings closely resemble products already available through licensed sportsbooks operating in the state.
In a statement accompanying the lawsuits, Coleman said:
“Kalshi and Polymarket are operating illegal sportsbooks in Kentucky and breaking our laws.These multi-billion dollar corporations and their legal fictions don’t pass the sniff test
Russell Coleman
Attorney General – Kentucky
Kentucky also alleged that approximately 89% of Kalshi’s $23 billion contract volume came from sports related markets. The state further accused Polymarket of promoting what it described as misleading claims that the platform can legally offer sports betting products in Kentucky.
Coinbase, Robinhood, and Webull Also Named
The legal action extends beyond Kalshi and Polymarket.
Kentucky included Coinbase in its complaint, arguing that the crypto exchange shared fees generated through Kalshi related transactions. Robinhood and Webull were also named because of their relationships with prediction market offerings connected to the platforms.
The attorney general’s office additionally claims that the companies failed to provide adequate gambling addiction resources and consumer protections required under Kentucky law for licensed gaming operators.
Platforms Argue Federal Law Takes Priority
Kalshi and Polymarket reject Kentucky’s interpretation of the law and continue to argue that their products fall under federal commodities regulations rather than state gambling laws.
Kalshi has repeatedly stated that it operates as a federally regulated exchange overseen by the Commodity Futures Trading Commission.
A company spokesperson said:
“The CFTC is our regulator, not the states.“
Polymarket has also criticized Kentucky’s legal action, saying the lawsuit conflicts with the federal framework governing prediction markets. The company said it intends to challenge the claims through the court process.
National Regulatory Battle Intensifies
The Kentucky lawsuits are the latest chapter in a rapidly expanding national fight over sports prediction markets.
More than a dozen states have taken action against prediction market operators through lawsuits, cease and desist orders, or regulatory complaints. State officials generally argue that sports event contracts fall under existing gambling laws and should be subject to local licensing and consumer protection requirements.
The CFTC, however, has maintained that federally regulated prediction market contracts fall under its exclusive jurisdiction through the Commodity Exchange Act. The agency has even sued several states that attempted to restrict prediction market operators.
Last week, the CFTC proposed rules that would further support certain sports related event contracts while limiting markets tied to activities such as terrorism, assassinations, and war.
Meanwhile, courts remain divided. A federal appeals court previously sided with Kalshi in a dispute involving New Jersey. However, a federal judge in Michigan recently denied Polymarket’s request for a preliminary injunction, ruling that sports prediction markets do not qualify as swaps under federal law. Polymarket has since appealed that decision.
Separate Tax Fight Continues
Kentucky and prediction market firms are already involved in another legal dispute.
A coalition that includes Kalshi, Polymarket, and Crypto.com previously challenged Kentucky’s new 14.25% tax on prediction market transaction fees. The companies argue that the tax unfairly targets federally regulated prediction markets.
That case remains separate from the newly filed gambling related lawsuits.