Summary
- Kentucky has filed a lawsuit against Kalshi and Polymarket, claiming they operate unlawful sports betting services.
- The platforms assert that their contracts fall under the jurisdiction of the CFTC, a stance supported by the Trump administration.
- This escalating legal conflict between state and federal authorities is anticipated to reach the U.S. Supreme Court.
This week, Kentucky has joined the ranks of states taking legal measures against prediction market platforms, targeting Kalshi and Polymarket for allegedly running illegal sports betting operations.
“Kalshi and Polymarket are running unlawful sportsbooks in Kentucky and violating our laws,” stated Kentucky's Attorney General, Russell Coleman, in a press release. “These multi-billion dollar companies and their legal pretenses are not credible.”
Kentucky is among several states that have initiated legal actions against prediction market platforms recently, citing potential breaches of state gambling regulations.
The platforms contend that their betting options, even when they closely resemble sports wagers, should be classified as swaps under the CFTC's federal oversight—a viewpoint endorsed by the administration of former President Donald Trump, which was known for its favorable stance towards the industry.
During Trump's presidency, the federal government has been notably proactive in its legal struggles with both Democratic and Republican states regarding the governance of prediction markets. The CFTC and the Justice Department have filed lawsuits against several states attempting to regulate these newer platforms, with intentions to pursue legal action against any further state attempts.
Despite these warnings, additional states seem undeterred in voicing their concerns.
In its legal complaint, Kentucky's regulators asserted that by not registering as gambling entities, Kalshi and Polymarket have failed to fulfill essential responsibilities, including providing resources for users to address gambling addiction issues.
The state has also taken legal action against VGW, an online casino platform purportedly offering illegal sweepstakes.
As litigation surrounding prediction market regulation continues to unfold nationwide, outcomes have varied. For example, in the Sixth Circuit, which encompasses federal courts in Kentucky, Ohio, Tennessee, and Michigan, two district court judges have tentatively ruled in favor of state regulators, while one has ruled in support of the prediction markets themselves.
The final decision on this matter is likely to be made by the U.S. Supreme Court.