Kentucky Sues Polymarket and Kalshi Over Alleged Illegal Sports Betting

Prediction markets let users trade event contracts tied to outcomes ranging from elections to game winners, point spreads and player statistics. Kalshi and Polymarket maintain that their US exchanges fall under the Commodity Futures Trading Commission and that the Commodity Exchange Act preempts state gambling rules. State and local authorities counter that sports contracts are functionally wagers offered without the licensing, taxes, age limits and responsible-gambling safeguards imposed on regulated sportsbooks.

Baltimore’s city government filed suit in Baltimore City Circuit Court on Aug. 13, 2026, naming Kalshi, Polymarket and distribution partners Robinhood, Webull and Coinbase as defendants. The complaint alleges the companies operated unlicensed sports-betting services and deceptively presented wagering products as federally regulated financial trading. Baltimore is seeking an injunction, restitution and disgorgement, plus civil penalties of as much as $1,000 for each violation and each day it continues. The filing did not specify an aggregate damages demand.

Kalshi lets customers trade event contracts tied to sports, elections and other outcomes and operates as a designated contract market overseen by the U.S. Commodity Futures Trading Commission. The dispute turns on whether those contracts are federally regulated derivatives or wagers that states may police under gambling laws. The answer matters beyond one platform: a federal win could preserve a national rulebook, while a state win could force prediction markets to obtain local gaming licenses, pay state taxes and follow consumer-protection rules in every jurisdiction.

New York Governor Kathy Hochul and Attorney General Letitia James sued Kalshi in state Supreme Court in Manhattan on July 31, 2026, accusing it of running an unlicensed gambling operation. The state seeks to halt the business, pay restitution, confiscate all allegedly illegal gains and impose fines equal to three times those gains; no fixed dollar amount was disclosed. The CFTC, which sued New York in federal court on April 24, is pressing emergency relief, arguing the Commodity Exchange Act gives it exclusive jurisdiction and preempts state enforcement against federally registered markets.

Polymarket lets users predict sports results through event contracts. At issue is whether such products should be regulated nationally by the U.S. Commodity Futures Trading Commission under federal derivatives law or treated by Michigan as gambling under state law. The jurisdictional question will determine whether individual states can restrict the platform and help define the operating boundaries of U.S. prediction markets.

A federal judge in Michigan ruled that Polymarket’s sports prediction contracts are not swaps under CFTC jurisdiction. The state may therefore continue regulating them under state law, and the judge rejected the platform’s effort to block enforcement. The conclusion conflicts with a Third Circuit Court of Appeals ruling involving Kalshi and could be appealed, potentially leaving the U.S. Supreme Court to resolve the issue.

Prediction markets allow users to trade contracts tied to the outcomes of elections, economic developments, sporting events and other occurrences. Kalshi, Polymarket and Crypto.com are all major platforms. Kentucky is the first state to impose a dedicated tax on such trades, a move that could affect platforms’ operating costs and shape whether other states can follow suit, as well as the boundaries of federal regulatory authority.

As of July 20, 2026, the three companies had formed a coalition and filed suit in a Kentucky court to challenge the state’s first-of-its-kind 14.25% tax on prediction-market trades. The companies argue that the tax subjects prediction markets to disparate treatment, making it discriminatory and unconstitutional. Available information has not disclosed the exact filing date, the damages sought or the date of the first hearing.

U.S. prediction market platform Kalshi allows users to trade contracts on political, economic and public-event outcomes, but its business has long faced jurisdictional disputes between state gambling laws and federal commodities regulation. The new organization, Americans for Fair Markets, seeks to break the traditional gambling industry's policy advantage, with the outcome shaping whether prediction markets can legally expand across the United States.

Kalshi recently announced its support for Americans for Fair Markets, which was co-founded with the involvement of a former Trump administration official. The group will work with an industry coalition backed by Coinbase and Crypto.com as the U.S. government scrutinizes the regulation of prediction market platforms. Available information does not disclose the organization's exact founding date, the amount committed or the official's name.

Kalshi and Polymarket allow users to wager on political, military and sporting outcomes through event contracts. Such products are regulated by the U.S. Commodity Futures Trading Commission, but have raised fairness concerns because people with access to confidential information could profit from them. In January 2026, a trader made more than $409,000 by betting on political developments in Venezuela.

On March 23, 2026, Kalshi barred candidates from betting on their own elections and prohibited sports insiders from trading related contracts. Polymarket also banned people with confidential information or the ability to influence outcomes from placing bets. On May 22, the U.S. House Committee on Oversight and Government Reform launched an investigation, saying more than 80 Polymarket users were linked to suspicious trades, and ordered both platforms to provide KYC and monitoring data by June 5.

Legal sports betting expanded rapidly after the U.S. Supreme Court struck down the Professional and Amateur Sports Protection Act in 2018. The market is now worth about $165 billion and spans 39 states and Washington, D.C. Kalshi, Crypto.com and others have entered the sector with event contracts regulated by the Commodity Futures Trading Commission, creating jurisdictional conflicts with state gambling laws and tribal gaming interests.

The U.S. Senate Commerce Committee's consumer protection panel held a roughly two-hour hearing on May 20, 2026, focusing on advertising, addiction and the risk of game manipulation. Chairman Ted Cruz cited NBA and MLB manipulation cases and said the Supreme Court might have to decide the issue. Kalshi had previously pledged $2 million to the National Council on Problem Gambling, while testimony indicated that nearly 50% of its trading during the 2025–26 season came from sports contracts.

Prediction markets allow users to trade “event contracts” tied to the outcomes of contests. Operators including Kalshi argue that such derivatives fall under the exclusive oversight of the U.S. Commodity Futures Trading Commission (CFTC), but Wisconsin considers them sports betting subject to state law. The case therefore raises questions about the boundary between federal and state regulatory authority.

The Wisconsin Department of Justice sued Kalshi, Robinhood, Coinbase, Polymarket and Crypto.com in Dane County court on April 23, 2026, seeking to halt sales of sports event contracts. The complaint alleged that sports contracts generate about 90% of Kalshi’s fee revenue, equivalent to roughly $1.3 billion on an annualized basis. On April 28, the CFTC countersued the state, asserting exclusive federal jurisdiction.

Kalshi, a designated contract market regulated by the U.S. Commodity Futures Trading Commission (CFTC), allows users to trade event contracts tied to sports, politics and other outcomes. Arizona considers the activity gambling that requires a license. The dispute centers on whether the Commodity Exchange Act’s exclusive federal jurisdiction preempts state gambling laws, with implications for whether prediction markets can operate across state lines nationwide.

Arizona Attorney General Kris Mayes charged KalshiEx LLC and Kalshi Trading LLC on March 17, 2026, with 20 misdemeanor counts. Four involved wagering on the 2026 gubernatorial and secretary of state elections and the 2028 presidential election. The charges specified no damages. U.S. District Judge Michael Liburdi stayed the case on April 10, then granted the CFTC a preliminary injunction on May 5 blocking Arizona from pursuing the prosecution.

Prediction markets allow users to trade contracts on election, economic or sports outcomes. Operators including Kalshi and Polymarket argue that their products are derivatives regulated by the CFTC, while states view proposition wagers as gambling, creating a jurisdictional clash between federal commodities law and state gaming laws.

The Utah Legislature passed HB243 in 2026, classifying proposition wagers on event outcomes as illegal gambling and barring operators from offering sports-betting-like prediction services in the state. Governor Spencer Cox has said he will sign the bill, exposing Kalshi and Polymarket to the risk of being blocked and facing enforcement action.