Kentucky is testing the CFTC’s powers with a case against Kalshi, Polymarket
Kentucky Attorney General Russell Coleman filed charges against Kalshi, Polymarket and several related partners, accusing them of offering unauthorized sports betting in the state.
Summary
- Kentucky says the betting markets fall under sports betting, while the stadiums say the contracts fall under federal law.
- Kalshi and Polymarket are now facing lawsuits, tax disputes, and various court rulings in several states.
- The CFTC supports federal oversight as state regulators push for licensing, consumer protection, and gambling regulations.
Kalshi’s lawsuit also names Coinbase, Robinhood and Webull, which Kentucky says helped give users access to contracts for sports events.
The charges were filed in Franklin County District Court. They argue that the platforms offer markets tied to game winners, point spreads and player statistics without a Kentucky gaming license. Coleman said, “Kalshi and Polymarket are using sportsbooks that are illegal in Kentucky and are violating our laws.”
The State says that sports contracts fall under the betting law
Kentucky says the products fit the state’s definition of sports betting, even if the stadiums call for event contracts. The state says users can trade on results that look like bets offered by licensed sportsbooks, including money lines, markets and prop-style markets.
The attorney general’s office also accused the platforms of offering few or no tools to users who may need help with gambling problems. Kentucky law requires licensed operators to meet consumer protection laws. The state says those defenses are not available in the courts named in these cases.
Kalshi and Polymarket reject state regulation
Kalshi and Polymarket have argued in other cases that their products fall under federal commodities law, not state gambling law. Kalshi said it operates as a regulated exchange under the Commodity Futures Trading Commission. A company spokesman said, “The CFTC is our regulator, not the states.”
Polymarket also pushed back against the government’s action. The company said the Kentucky case violates the CFTC’s market prediction framework and said it would pursue the claims through a legal process. Both companies say state licensing laws should not govern contracts that are on the federal watch list.
Widespread legal battles are brewing across the US
The Kentucky lawsuits come as prediction markets firms face pressure from several state regulators. Montana, Nevada, Utah, Iowa, Illinois, Ohio, Tennessee, New York, New Jersey, Connecticut and Maryland have sent cease and desist letters or taken legal action against the operators. Washington, Arizona, New Mexico, Wisconsin, Michigan, Massachusetts and Kentucky have also sued stadiums tied to contracts for sporting events.
The CFTC has taken the opposite view in several disputes. The agency sued the states, saying event contracts traded on exchanges regulated by the agency fell under its jurisdiction. The courts have not reached a single clear answer. The Third Circuit sided with Kalshi in the New Jersey case, while other courts have allowed state gambling cases to move forward. For users, the cases may determine which legal platforms must be followed before offering game markets.
The tax dispute adds another dimension
Kentucky is also fighting foreclosure market firms over taxes. A consortium comprising Kalshi, Crypto.com and Polymarket sued the government for a new 14.25% tax on marketplace transaction fees. The group says the tax targets federally regulated markets and operates worse betting platforms than some state-owned gambling enterprises. The tax case remains separate from new gambling claims.
Legal pressure comes as trade volumes and product lines grow. Kalshi has grown into a permanent crypto-linked future and reported over $5.5 billion in volume within two weeks of its launch. At the same time, compliance concerns are increasing. Kalshi recently partnered with StarCompliance to help financial firms monitor labor market volatility.
