The state of Kentucky has joined the attack on Polymarket and Kalshi: sports betting under regulatory scrutiny.
On June 17, Kentucky Attorney General Russell Coleman filed lawsuits against two of the largest prediction market platforms — Polymarket and Kalshi. State authorities allege that under the guise of innovative financial instruments, these services are actually offering illegal sports betting to residents. The lawsuits were filed in Franklin County Circuit Court, where both platforms are labeled "illegal bookmaking operations."
According to the Attorney General's office, Polymarket and Kalshi operate without the appropriate license and fail to provide users with mandatory tools for identifying gambling addiction. Coleman emphasizes that the ability to bet on match winners and player statistics is "plain old betting, just under a different name."
Numbers Don't Lie: Sports Dominates
According to materials from one of the lawsuits, Kalshi executed contracts worth nearly $23 billion over the past year, of which 89% were related to sports. In a selected period of 2025, the share of sports events was about 70%. Authorities remind that in Kentucky, only licensed bookmakers approved by the state's Horse Racing and Gaming Corporation have the right to offer sports betting.
"These multi-billion dollar corporations and their legal tricks cannot withstand any scrutiny. As one of our state's legislative leaders aptly put it: 'If it looks like a duck and quacks like a duck...'" said Attorney General Coleman.
Federal Front and New Laws
On July 15, The Wagering Consumer Protection Act takes effect in Kentucky, which will prohibit licensed sports betting operators from cooperating with the platforms mentioned in the lawsuits. Meanwhile, Polymarket and Kalshi are actively defending themselves, citing the jurisdiction of the U.S. Commodity Futures Trading Commission (CFTC). Polymarket claims that the state's actions contradict the established regulatory system, while Kalshi insists that oversight of federally regulated exchanges should remain under the CFTC's purview.
On April 2, the CFTC filed lawsuits against Arizona, Connecticut, and Illinois, asserting exclusive jurisdiction over event outcome contracts. On June 10, the commission put forward a draft of new rules for discussion, proposing to review such products for links to gambling activities, war, and terrorism. A 90-day review period has been allocated.
Legal Battles and Legislative Initiatives
On June 17, a federal judge in Michigan dismissed Polymarket's motion against state-level regulation, stating that sports contracts are not swaps and do not fall under federal jurisdiction. Earlier, in April, the Third Circuit Court of Appeals supported Kalshi in its dispute with New Jersey, allowing it to continue operations pending the resolution of the proceedings.
On June 16, a coalition of the American Gaming Association and the Indian Gaming Association called on the Senate to include a provision in the CLARITY Act that would remove sports betting from CFTC oversight. And in March, Senators Adam Schiff and John Curtis introduced the Prediction Markets Are Gambling Act, which could completely ban sports contracts at the federal level.
Recall that Polymarket returned to the U.S. market in November 2025 after paying a $1.4 million fine and settling its dispute with the CFTC.
My analysis: Kentucky is neither the first nor the last state to take such action. States see prediction markets as a threat to their tax base and control over gambling. However, the CFTC's attempts to assert federal jurisdiction create a dangerous precedent: if courts begin to distinguish between "swaps" and "bets," it could stifle innovation in the sector. Investors should closely monitor developments — the outcome of this battle will determine the future of the entire prediction market industry in the U.S.