90%
75%
USA
Canada
Australia
UKKentucky AG Targets Prediction Markets In New Gambling Lawsuits
Key Highlights
- Kentucky Attorney General Russell Coleman sued Kalshi and Polymarket, claiming their prediction-market products violate state gambling laws.
- Coleman’s office argues the platforms are operating as unlicensed sportsbooks by offering event contracts tied to sports outcomes.
- The lawsuits come as prediction market companies challenge Kentucky’s new 14.25% tax on transaction fees.
The legal status of prediction markets is becoming increasingly muddled with challenges in several states. Now, Kentucky is suing Kalshi and Polymarket, claiming the operators have taken advantage of a loophole to offer illegal sports betting.
Kentucky AG Takes Aim At Prediction Markets
Kentucky Attorney General Russell Coleman filed lawsuits against Kalshi and Polymarket on in Franklin Circuit Court, escalating a state-level fight over whether event contracts should be treated as federally regulated financial products or illegal sports betting. The AG’s Office claims the companies are using a new format to offer wagering that Kentucky law doesn’t permit.
The lawsuits focus on prediction market sites that let users buy and sell contracts tied to real-world outcomes. In Coleman’s view, many of those products mirror sports betting because customers can effectively take “yes” or “no” positions on sports-related events. His office argues that calling those products event contracts doesn’t change their practical function, while also accusing Kalshi and Polymarket of operating illegal sportsbooks in Kentucky.
The lawsuits also allege violations of state consumer protection and gambling laws, setting up another legal test over how much authority states have when prediction markets claim federal regulation.
Federal Regulation & State Control Collide
Kalshi pushed back on Kentucky’s argument by pointing to its federal status. Kalshi is regulated by the Commodity Futures Trading Commission (CFTC), not individual states, and courts, including most recently the U.S. Court of Appeals for the Third Circuit, have already recognized that distinction. Polymarket also said it expects to address the claims through the legal process.
That divide is at the center of the dispute. Prediction market operators have argued that their products fall under federal commodities oversight, while Kentucky and other states are pressing to preserve their power over gambling and sports betting inside their borders. In May, Minnesota became the first state to ban prediction markets, which triggered a federal lawsuit from the CFTC.
Coleman, along with attorneys general from nearly all 50 states, previously wrote a letter to the CFTC in support of states’ rights to regulate prediction markets.
Tax Fight Adds Pressure In Kentucky
The new lawsuits also follow a separate legal challenge from prediction market companies against Kentucky’s new 14.25% tax on their transaction fees. That lawsuit, filed the week before Coleman’s announcement, alleges the tax is discriminatory, unconstitutional, and pre-empted by federal law.
Coleman’s office is also raising responsible gambling concerns. According to the lawsuit, Kentucky officials believe Kalshi and Polymarket provide little to no support for residents who may be dealing with gambling addiction. Under Kentucky law, 2.5% of sports betting tax revenue is directed toward addiction treatment and prevention programs.
