On June 17, Kentucky Attorney General Russell Coleman filed lawsuits in Franklin Circuit Court against Kalshi, Polymarket, and online sweepstakes operator VGW. The central claim against the two prediction market platforms: they're running unlicensed sportsbooks in the state, violating Kentucky's Consumer Protection Act, Loss Recovery Act, and gambling statutes.
The complication is that Kalshi operates under direct federal approval. The Commodity Futures Trading Commission (CFTC) classifies event contracts as financial instruments, not gambling, and treats their regulation as a federal matter. Coleman's office doesn't buy it. "Kalshi and Polymarket are operating illegal sportsbooks in Kentucky and breaking our laws," he said. His argument is straightforward: if a platform is taking money from state residents on sports outcomes, it falls under state gambling law — regardless of how the CFTC classifies it.
The numbers make clear why regulators are paying attention. Kalshi processed over $23 billion in contract volume in 2025, with roughly 89% tied to sports outcomes. The AG's office argues that Polymarket's offerings — moneylines, point spreads, totals, parlays, proposition bets — are functionally identical to traditional sportsbook products. Polymarket adds another layer of complexity: it runs on blockchain and settles in cryptocurrency, which makes pinning down jurisdiction harder than it would be for a conventional operator.
Penalties sought are per-violation: up to $2,000 per breach of the Kentucky Consumer Protection Act, and up to $10,000 where the affected person was over 60. The lawsuits also allege that neither platform provides the responsible gambling resources that Kentucky law requires.
Kentucky is not acting alone. Connecticut went after Kalshi, Robinhood, and Crypto.com on similar grounds back in December 2025. A separate CFTC lawsuit against New Mexico is directly testing whether federal preemption shields prediction markets from state regulation — and that case may end up setting the decisive precedent. Until there is a federal statute specifically governing prediction markets, unlike stablecoins which now have the GENIUS Act framework, state attorneys general have a legal opening they are clearly willing to use.
