Kentucky challenges Polymarket and Kalshi: a new round of struggle for regulation of prediction markets
On June 17, Kentucky Attorney General Russell Coleman filed lawsuits against two of the largest prediction market platforms — Kalshi and Polymarket. State authorities argue that under the guise of prediction contracts, these services are effectively offering unlicensed sports betting to residents, which is a direct violation of local law.
The lawsuits were filed in Franklin County Circuit Court, where both platforms are labeled "illegal bookmaking operations." According to the attorney general's office, Kalshi and Polymarket operate without the necessary license and fail to provide users with mandatory tools for identifying gambling addiction. Coleman emphasizes that betting on match outcomes and player statistics is "plain old betting, just under a different name."
The numbers speak for themselves: over the past year, the volume of contracts on Kalshi reached nearly $23 billion, with 89% of them tied to sporting events. During a selected period in 2025, sports accounted for about 70% of trading volume. It is worth noting that in Kentucky, only bookmakers licensed by the state's Horse Racing and Gaming Corporation are legally allowed to offer sports betting.
"These multi-billion-dollar corporations and their legal loopholes don't hold up to any scrutiny. As one of our state legislative leaders aptly put it: 'If it looks like a duck and quacks like a duck...'" — said Attorney General Coleman.
The situation is compounded by the fact that on July 15, the Wagering Consumer Protection Act will take effect in Kentucky, prohibiting licensed sports betting operators from collaborating with the platforms named in the lawsuits. This creates serious risks for Polymarket and Kalshi's business in the region.
Representatives of Polymarket have already stated that the authorities' actions contradict the established regulatory system, where the U.S. Commodity Futures Trading Commission (CFTC) plays the primary role. Kalshi insists that oversight of federally regulated exchanges should remain with the CFTC, not the states. However, on June 17, a federal judge in Michigan rejected 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 federal level, the battle is also intensifying. On April 2, the CFTC filed lawsuits against Arizona, Connecticut, and Illinois, asserting exclusive jurisdiction. On June 10, the regulator proposed new rules for discussion, suggesting a review of contracts for links to gambling activities. On June 16, a coalition of gambling associations asked the Senate to include a provision in the CLARITY Act that would remove sports betting from CFTC oversight. Additionally, Senators Adam Schiff and John Curtis have prepared the Prediction Markets Are Gambling Act, which could completely ban such contracts at the federal level.
It is worth recalling that Polymarket returned to the U.S. market 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 once again under fire, and the outcome of this confrontation could set the tone for the entire prediction market sector.
My analysis: Kentucky is not the first state to target Polymarket and Kalshi, and it is clearly not the last. This case exposes a fundamental problem: prediction markets teeter on the edge between financial innovation and gambling. While federal regulators try to pull the rug from under their feet, states are acting tough and fast. If the Prediction Markets Are Gambling Act passes, we will witness not just local lawsuits, but a complete reshaping of the industry in the U.S. Investors should be extremely cautious — volatility in this sector will only increase.