Kentucky sues Kalshi, Polymarket and partners over sports event contracts

Kentucky has filed lawsuits against Kalshi, Polymarket, and Kalshi partners Coinbase, Robinhood and Webull, escalating the state-by-state fight over prediction markets and sports event contracts. For PSPs and platforms that touch this vertical, the issue is straightforward: if a state treats the product as sports betting, the licensing and compliance stack changes fast.

1. State Attorney General Russell Coleman said Wednesday that his office sued Polymarket and Kalshi in state court, accusing them of “operating unlicensed and illegal sports betting and gambling platforms.” He said, “Kalshi and Polymarket are operating illegal sportsbooks in Kentucky and breaking our laws.”
2. Kentucky’s complaint also names Kalshi partners Coinbase, Robinhood and Webull, and says the platforms are doing business without a Kentucky gaming license or following state regulations. The state argues that their sports event contracts “fall squarely within the definition of ‘sports wagering’ under Kentucky law.”
3. The commercial scale is not tiny. Kalshi and Polymarket together recorded $25 billion in monthly trading volume in May, according to Token Terminal. That matters because state actions can push a platform, and the payment partners around it, out of some of the largest US markets.
4. Kentucky also alleges that the platforms offer users “few or no resources” to identify or seek help for a gambling problem, which state law requires. Polymarket said the action “runs counter to the CFTC’s established framework for regulating prediction markets,” while Kalshi said, “Kalshi is a federally regulated exchange — the CFTC is our regulator, not the states.”
5. The case lands in the middle of a wider legal war. At least 17 other states have taken prediction market operators to court, and the CFTC has sued eight states after they moved against prediction markets, saying they were stepping on federal authority. Kentucky itself is also already facing litigation from Kalshi and Polymarket over its first-in-the-country 14.25% tax on prediction market transaction fees.

The practical takeaway for high-risk PSPs is that prediction markets are no longer just a product debate. When states start calling event contracts “sports wagering,” the questions become license status, state-by-state coverage, and whether your acquiring or platform partner wants that exposure on its books.