Kentucky has become the latest state to move against the fast-growing prediction market industry, filing suit against Kalshi and Polymarket and accusing both companies of running what state officials describe as unlicensed sports betting operations.
The case places the Republican-led state in an unusual position. Kentucky backed Donald Trump overwhelmingly in the 2024 election, yet its legal argument cuts directly against a position the president has publicly embraced: that prediction markets fall under federal oversight and should not be regulated as state gambling operations.
Attorney General Russell Coleman, a Republican and former federal prosecutor who was nominated by Trump during his time as president, announced the lawsuit Wednesday. The state contends that Kalshi and Polymarket are offering sports-related event contracts without obtaining the licenses required for gambling operators in Kentucky. State officials also took aim at several major financial platforms connected to the industry, naming Coinbase, Robinhood and Webull. Kentucky argues that the companies involved do not provide the gambling addiction resources required under state law for licensed operators.
Federal and State Regulatory Power Struggle
The legal battle is part of a widening conflict over the future of prediction markets, which allow users to buy and sell contracts tied to the outcome of real-world events. Companies such as Kalshi and Polymarket maintain that these products are federally regulated derivatives rather than traditional wagers, placing them under the jurisdiction of the Commodity Futures Trading Commission.
That argument has gained powerful backing in Washington. Under CFTC Chairman Mike Selig, the agency has aggressively asserted its authority over event contracts, repeatedly intervening when states attempt to treat prediction markets as gambling businesses. The commission has sued eight states, including a recent action involving New Mexico, and has entered other ongoing court disputes tied to the sector.
Trump has also weighed in personally, arguing that prediction markets belong under the CFTC’s exclusive authority and describing the industry as one that deserves federal protection. In recent public comments, he praised Selig’s leadership and criticized state officials seeking greater control over the platforms.
Kentucky’s lawsuit arrives despite that federal support. The state’s position largely mirrors arguments made elsewhere: prediction market companies are effectively offering sports betting products without complying with state gaming rules. Polymarket signaled it intends to fight the case. A company spokesperson said Kentucky’s action conflicts with the regulatory framework the CFTC has established for prediction markets.
The dispute has created unusual political alliances. Some of the strongest critics of the industry’s expansion come from within Republican circles. Mick Mulvaney, Trump’s former White House chief of chief of staff, now leads Gambling Is Not Investing, an organization that argues prediction markets are being used to bypass state gambling laws. Opposition has also emerged from outside the current administration.
Former Securities and Exchange Commission Chairman Gary Gensler, who previously chaired the CFTC as well, recently submitted a court filing arguing that sports-related contracts offered by Kalshi should be treated as activity subject to state gaming regulation. The courtroom fights are multiplying quickly, heading toward a larger constitutional question that legal observers expect will require resolution by the U.S. Supreme Court.
