Kentucky has filed separate lawsuits against prediction market exchanges Kalshi and Polymarket, alleging the companies are offering illegal sports betting to users in the state who are at least 18 years old. The civil complaints were filed in Franklin Circuit Court in Frankfort. Attorney General Russell Coleman said the platforms are operating illegal sportsbooks in Kentucky, where retail and online sports betting were legalized in 2023 under a state-regulated system.
The dispute centers on sports-related event contracts offered by prediction market platforms. Kentucky argues those contracts amount to unlawful sports wagering under state law. Kalshi, Polymarket and others in the sector, however, maintain that prediction market contracts fall under federal oversight by the Commodity Futures Trading Commission and are exempt from state and tribal gaming laws. That position has also been backed by the CFTC, which has moved to block several states from enforcing gaming laws against platforms including Polymarket, Kalshi, Coinbase and Crypto.com.
The legal clash comes as Kentucky pursues a broader crackdown on gambling products it says operate outside state law. The attorney general has also filed a lawsuit against VGW, the parent company of sweepstakes casino brands including Global Poker, LuckyLand Slots and Chumba Casino. In that case, the state argues the company uses virtual tokens and redeemable premium coins to facilitate casino-style gambling for cash, while Coleman said his office has a duty to stop illegal gambling regardless of how it is packaged.
The lawsuits also unfold against the backdrop of a new Kentucky law imposing a 14.25% excise tax on prediction market transaction fees, which is scheduled to take effect on Jan. 1, 2027. That measure has already prompted a separate lawsuit from the Coalition for Fair Markets, which argues the tax is invalid and excessive because prediction market contracts, including sports-related ones, fall entirely within the CFTC’s authority. With similar disputes playing out in courts around the country, the broader question of how prediction markets should be classified and regulated is expected to remain contested, with a potential Supreme Court review seen in the coming years.