Kentucky Attorney General Russell Coleman has filed lawsuits in Franklin Circuit Court against prediction market operators Kalshi and Polymarket, as well as online sweepstakes operator VGW. The complaints also name Coinbase, Robinhood, and Webull as defendants. Kentucky accuses these platforms of running unlicensed sportsbooks, violating the state's consumer protection, loss recovery, and gambling statutes. This legal action marks a significant escalation in the ongoing national debate over the regulatory classification of prediction markets, with states arguing they are gambling and platforms asserting they are federally regulated swaps under the Commodity Futures Trading Commission (CFTC).
Kalshi and Polymarket previously argued that their products are regulated by the CFTC, not state gambling laws. Kalshi specifically states that the CFTC is its regulator, not individual states, and the Third Circuit Court sided with Kalshi in a New Jersey case, ruling that the state could not enforce its gambling laws against Kalshi’s sports event contracts. Polymarket has also indicated it will challenge Kentucky's claims, stating the lawsuit contradicts the CFTC's established framework for prediction markets. However, courts have not reached a uniform answer, with some rulings favoring platforms and others allowing state gambling cases to proceed.
The Kentucky lawsuits come amidst broader state concerns and legal actions against prediction markets. Sixteen states are involved in legal proceedings against these platforms, with Minnesota moving to ban them entirely. The CFTC, in turn, has sued six states—Wisconsin, New York, Connecticut, Illinois, Arizona, and Minnesota—to defend its perceived exclusive jurisdiction over event contracts, classifying them as swaps. Kentucky has also been laying the groundwork for this confrontation, with new legislation (House Bill 904) taking effect July 15, 2026, which will raise the sports betting age, limit certain college proposition wagers, and impose a 14.25% excise tax on prediction market transaction fees, while also barring licensed Kentucky operators from partnering with Kalshi or Polymarket.
Attorney General Coleman's office also highlighted a lack of consumer protection tools for users with gambling problems on the accused platforms, which Kentucky law requires for licensed operators. The state's lawsuits are a direct test of the line between federal regulatory authority and state power regarding these financial products. A coalition including Kalshi and Polymarket has separately challenged Kentucky's new 14.25% excise tax on prediction market transaction fees, arguing it unfairly targets federally regulated markets compared to other gambling businesses in the state.
