Kentucky tests CFTC power with lawsuit against Kalshi, Polymarket
Kentucky Attorney General Russell Coleman has filed lawsuits against Kalshi, Polymarket and several related partners, accusing them of offering unlicensed sports betting in the state.
Summary
- Kentucky says prediction markets crossed into sports betting, while platforms claim federal law controls contracts.
- Kalshi and Polymarket now face lawsuits, tax disputes, and split court rulings across several states.
- The CFTC backs federal oversight as state regulators push licensing, consumer protections, and gambling rules.
The Kalshi case also names Coinbase, Robinhood and Webull, which Kentucky says helped give users access to sports event contracts.
The lawsuits were filed in Franklin Circuit Court. They argue that the platforms offered markets tied to game winners, point spreads and player statistics without a Kentucky gaming license. Coleman said, “Kalshi and Polymarket are operating illegal sportsbooks in Kentucky and breaking our laws.”
State says sports contracts fall under betting law
Kentucky claims the products fit the state definition of sports wagering, even when platforms call them event contracts. The state says users can place trades on outcomes that look similar to wagers offered by licensed sportsbooks, including money lines, spreads and prop-style markets.
The attorney general’s office also accused the platforms of offering few or no tools for users who may need help with gambling problems. Kentucky law requires licensed operators to meet consumer protection rules. The state says those protections are missing from the platforms named in the cases.
Kalshi and Polymarket reject state control
Kalshi and Polymarket have argued in other cases that their products fall under federal commodities law, not state gambling law. Kalshi has said it operates as a federally regulated exchange under the Commodity Futures Trading Commission. A company spokesperson said, “The CFTC is our regulator, not the states.”
Polymarket has also pushed back against state action. The company said Kentucky’s lawsuit goes against the CFTC’s framework for prediction markets and said it will address the claims through the legal process. Both companies say state licensing rules should not control contracts listed under federal commodities oversight.
Broader legal fight grows across the U.S.
The Kentucky cases come as prediction market firms face pressure from several state regulators. Montana, Nevada, Utah, Iowa, Illinois, Ohio, Tennessee, New York, New Jersey, Connecticut and Maryland have sent cease-and-desist letters or taken legal steps against operators. Washington, Arizona, New Mexico, Wisconsin, Michigan, Massachusetts and Kentucky have also sued platforms tied to sports event contracts.
The CFTC has taken the opposite view in several disputes. The agency has sued states, saying event contracts traded on federally regulated exchanges fall under its authority. Courts have not reached one clear answer. The Third Circuit sided with Kalshi in a New Jersey case, while other courts have allowed state gambling cases to move forward. For users, the cases may decide which rules platforms must follow before offering sports markets.
Tax dispute adds another front
Kentucky is also fighting prediction market firms over taxes. A coalition that includes Kalshi, Crypto.com and Polymarket sued the state over a new 14.25% tax on prediction market transaction fees. The group says the tax targets federally regulated markets and treats prediction platforms worse than some state gambling businesses. The tax suit remains separate from the new gambling complaints.
The legal pressure comes as trading volumes and product lines grow. Kalshi has expanded into crypto-linked perpetual futures and reported more than $5.5 billion in volume within two weeks of launch. At the same time, compliance concerns are rising. Kalshi recently partnered with StarCompliance to help financial firms monitor employee prediction market trades.
