Kentucky joins the attack on Polymarket and Kalshi: prediction markets under regulatory fire
On June 17, Kentucky Attorney General Russell Coleman filed lawsuits against two of the largest prediction market platforms — Kalshi and Polymarket. State authorities allege that under the guise of innovative financial instruments, these services are effectively offering residents illegal sports betting without a license.
The lawsuits, filed in Franklin County Circuit Court, directly refer to Kalshi and Polymarket as "illegal bookmaking operations." The main grievances center on the lack of a gambling license and disregard for mandatory requirements to protect users from gambling addiction. According to the attorney general, bets on match winners and individual player statistics are "ordinary betting disguised as prediction markets."
The figures cited in the lawsuit are striking: over the past year, the volume of contracts on Kalshi reached nearly $23 billion, of which 89% were related to sports. In 2025, this share was about 70%. Authorities note that in Kentucky, only licensed bookmakers can accept sports bets — and only through the state's Horse Racing and Gaming Corporation.
"These multi-billion dollar corporations and their legal loopholes are indefensible. 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.
Notably, on July 15, The Wagering Consumer Protection Act will take effect in Kentucky, prohibiting licensed operators from collaborating with these platforms. Thus, the state is delivering a double blow: judicial and legislative.
Federal vs. State Oversight: A Battle of Jurisdictions
Representatives of Polymarket have already stated that Kentucky's actions contradict the established practice of regulating prediction markets by the U.S. Commodity Futures Trading Commission (CFTC). Kalshi, for its part, insists that oversight of federally regulated exchanges should remain exclusively with the CFTC, not the states.
This position finds support at the federal level. On April 2, the CFTC filed lawsuits against Arizona, Connecticut, and Illinois, asserting exclusive jurisdiction over such contracts. And on June 10, the regulator released for public comment a draft of new rules proposing to review event outcome contracts for links to gambling, war, and terrorism.
However, judicial practice remains mixed. On June 17, a federal judge in Michigan dismissed Polymarket's motion against state-level regulation, ruling that the platform's sports contracts are not swaps and do not fall under federal jurisdiction. At the same time, in April, the Third Circuit Court of Appeals sided with Kalshi in its dispute with New Jersey, allowing the platform to continue operating.
Gambling Lobbying and Legislative Initiatives
On June 16, a coalition of the American Gaming Association, the Indian Gaming Association, and two labor unions asked the Senate to include a provision in the CLARITY Act that would remove sports betting from CFTC oversight and ban it on prediction market platforms. And in March, Senators Adam Schiff and John Curtis introduced the Prediction Markets Are Gambling Act, which would federally ban sports and "casino-like" contracts.
Recall that Polymarket returned to the U.S. market only on November 13, 2025, in beta mode, after settling a dispute with the CFTC and paying a $1.4 million fine. Now the platform is under fire again — this time from the states.
Expert Commentary: This situation is a classic example of the conflict between innovation and established legal norms. Prediction markets truly sit at the intersection of finance and gambling, and neither side has yet offered a convincing distinction. My forecast: within the next 12–18 months, we will see either a federal law that clearly defines the status of such platforms, or a series of judicial precedents that will do this for lawmakers. In any case, Polymarket and Kalshi will have to adapt — or exit a significant portion of U.S. jurisdictions.