Kentucky Sues Kalshi, Polymarket — "If It Quacks Like a Sportsbook…" 🦆

Kentucky Attorney General Russell Coleman filed lawsuits in state court Wednesday against prediction market operators Polymarket and Kalshi, along with Kalshi partners Coinbase, Robinhood and Webull, accusing them of running unlicensed sports betting and gambling platforms. "Kalshi and Polymarket are operating illegal sportsbooks in Kentucky and breaking our laws," Coleman said. "These multi-billion dollar corporations and their legal fictions don't pass the sniff test. As one of our state legislative leaders said it best, 'If it looks like a duck and quacks like a duck…'" Kentucky's complaint alleges the companies are "doing business without a Kentucky gaming license or following state regulations" and that their sports event contracts "fall squarely within the definition of 'sports wagering' under Kentucky law." The state also claimed the platforms offer users "few or no resources" to identify or seek help for a gambling problem as required by state law.

Kalshi and Polymarket together recorded $25 billion in monthly trading volume in May, according to Token Terminal. A Polymarket spokesperson told Cointelegraph Kentucky's action "runs counter to the CFTC's established framework for regulating prediction markets. We look forward to addressing these claims through the appropriate legal process." Kalshi spokesperson Jacki McGavick said "Kalshi is a federally regulated exchange — the CFTC is our regulator, not the states. Courts have already recognized this, and we're confident they will here too." The U.S. Commodity Futures Trading Commission did not immediately respond to a request for comment.

At least 17 other states have taken prediction market operators to court, and the legal clash has drawn in the CFTC, the Department of Justice and the White House. State authorities have argued that sports-linked event contracts constitute sports betting requiring state-level licenses, while prediction market companies have countered that the contracts are swaps regulated under federal commodities law. The CFTC has sued eight states over their actions against prediction markets, claiming the states are encroaching on its authority. Kentucky's filings follow actions in Montana, Nevada, Utah, Iowa, Illinois and others, and a federal judge in the Western District of Michigan on Wednesday denied Polymarket's request for a preliminary injunction against Michigan regulators, ruling that sports-related prediction market wagers do not constitute swaps under the CFTC's jurisdiction.

Kalshi and Polymarket, through a coalition of platforms, are already entangled in separate litigation with Kentucky after suing the state Friday over its first-in-the-country 14.25% tax on prediction market transaction fees, which they argue is discriminatory and oversteps federal law. The Sixth Circuit, which oversees federal courts in Kentucky, Ohio, Tennessee and Michigan, has so far split on the underlying question, with two district court judges preliminarily siding with state regulators and one siding with the prediction markets, a divide that points toward eventual U.S. Supreme Court review.