Hassan Maishera
TL;DR
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Kentucky has filed lawsuits against Kalshi, Polymarket, and Coinbase, accusing them of operating unlicensed sports betting platforms disguised as prediction markets.
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The state argues these platforms bypass gambling laws and taxes, while regulators and the CFTC continue to clash over who has authority over sports-related event contracts.
Kentucky Accuses Prediction Market Platforms of Running Unlicensed Sportsbooks
Kentucky has filed lawsuits against prediction market platforms Kalshi, Polymarket, and associated companies, alleging that they are operating illegal, unlicensed sports betting services within the state.
According to a statement released on Wednesday, Kentucky Attorney General Russell Coleman initiated three separate lawsuits: one targeting Kalshi and affiliates, including Coinbase, another against Polymarket and its affiliates, and a third against online gambling platform VGW.
Coleman argued that these companies are effectively running unlicensed sportsbooks while bypassing state gambling regulations and tax obligations.
“Kalshi and Polymarket are operating illegal sportsbooks in Kentucky and breaking our laws,” Coleman said. He added that the companies “don’t pass the sniff test,” referring to what he described as attempts to rebrand betting activity as financial trading products.
State officials contend that prediction markets offering sports-related “event contracts” are functionally equivalent to traditional sports betting. The filing claims that a significant share of Kalshi’s trading volume—reported at 89% of $23 billion—is tied to sports wagering.
The lawsuit also accuses Polymarket of misleading advertising, alleging that it falsely suggests it is authorized to offer sports betting in Kentucky. Officials argue that its offerings mirror conventional sportsbook products, including money lines, spreads, totals, parlays, and prop bets.
Kentucky further claims that simply labeling these wagers as “sports event contracts” does not make them legally distinct from gambling activity under state law.
Coinbase was included in the lawsuit due to its alleged revenue-sharing arrangement with Kalshi for transactions conducted through its platform. The state statement also referenced Robinhood and Webull as affiliated platforms connected to Polymarket activity.
The legal action escalates an ongoing conflict between state regulators and the Commodity Futures Trading Commission (CFTC) over jurisdiction in prediction markets.
More than a dozen U.S. states have challenged the legality of sports-related prediction contracts, arguing they violate state gambling laws. However, the CFTC maintains that it has exclusive federal authority over regulated prediction markets under the Commodity Exchange Act, which may preempt state restrictions.
The CFTC has also previously taken legal action against states attempting to limit prediction market activity.
Recently, the agency proposed updated rules that would more explicitly support sports-related event contracts while restricting markets tied to sensitive subjects such as terrorism, assassination, and warfare.
At the same time, U.S. gaming industry groups have reportedly urged lawmakers to ban sports event contracts altogether in upcoming federal legislation.
