Kentucky files lawsuits against prediction and sweepstakes operators
Kentucky Attorney General Russell Coleman has filed lawsuits against online sweepstakes casino VGW and prediction markets Kalshi and Polymarket, accusing them of offering unlicensed gambling in the state.
A statement from the Attorney General’s office, said Coleman had launched three separate lawsuits, one targeting Kalshi and its affiliates, including cryptocurrency exchange Coinbase, another targeting Polymarket, and a third aimed at VGW.
The lawsuits allege that Kalshi and Polymarket are operating illegal sportsbooks in Kentucky by offering sports event contracts without a gaming license, thereby avoiding the customer protection rules and taxation that apply to licensed operators.
Among the suits, the state argued that sports betting takes up most of Kalshi’s trading volume. It also alleges that Polymarket has incorrectly advertised its sports betting markets as legal in Kentucky.
Kalshi’s lawsuit alleges that Coinbase shared fees generated by trades on its platform. Similar allegations were made against Robinhood and Webull, which officials say were identified as Polymarket affiliates.
“Kalshi and Polymarket are operating illegal sportsbooks in Kentucky and breaking our laws,” said Coleman. “These multi-billion-dollar corporations and their legal fictions don’t pass the sniff test. As one of our state legislative leaders said it best, ‘If it looks like a duck and quacks like a duck…”
Coleman has been outspoken about the regulation of sports contracts. In May, he joined a bipartisan effort, along with other attorneys general, arguing that such contracts should be regulated by the state.
Charlotte Capewell brings her passion for storytelling and expertise in writing, researching, and the gambling industry to every article she writes. Her specialties include the US gambling industry, regulator legislation, igaming, and more.
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Kentucky enters a widening fight over event contracts
Kentucky’s lawsuits against Kalshi, Polymarket and VGW put the state at the center of a fast-moving national dispute over where prediction markets end and gambling begins. Attorney General Russell Coleman’s complaints follow a pattern emerging across the U.S.: state officials argue sports event contracts and sweepstakes-style casino products are unlicensed gambling, while operators say newer business models fall outside traditional sportsbook and casino rules.
The Kentucky actions are notable because they target both sides of that debate. Kalshi and Polymarket are accused of offering sports markets that function like online sports betting without state licensing, tax payments or gambling-specific consumer protections. VGW, a major sweepstakes casino operator, faces separate allegations tied to casino-style products. By filing three lawsuits at once, Kentucky is signaling that legal form will not be enough to avoid scrutiny if the state views the activity as gambling in practice.
The cases also escalate a conflict already drawing in federal regulators, tribal gaming interests, crypto platforms, brokerages and state attorneys general. Kentucky’s complaint against Kalshi names Coinbase among affiliates, while allegations tied to Polymarket mention Robinhood and Webull. That reflects how event contracts have moved beyond niche exchanges into broader financial and consumer trading channels, increasing the stakes for both regulators and distribution partners.
States argue sports contracts are disguised wagering
The strongest state-level throughline is that sports event contracts resemble ordinary bets regardless of the market structure used to offer them. Wisconsin made that argument when its Department of Justice sued prediction market operators over alleged illegal sports betting, naming Kalshi, Robinhood, Coinbase, Polymarket and Crypto.com. The state said contracts tied to sports outcomes were a thinly disguised form of wagering and should be subject to gambling laws.
Wisconsin’s action came as lawmakers and tribal governments were separately discussing the future of online gambling in the state. Officials said the lawsuits were not tied to that legislative process, but the timing underscored the broader policy problem. If event contracts can be offered nationally under financial-market rules, states may lose control over sports betting expansion, licensing standards and revenue structures that were negotiated over years.
New Mexico advanced a similar position in a suit filed by Attorney General Raul Torrez. The state alleged Kalshi offered illegal online sports betting without approval from the New Mexico Gaming Control Board and made the product available to users 18 and older, below the state’s gambling age threshold. The case followed tribal litigation, with pueblos and the Mescalero Apache Reservation arguing Kalshi’s activities interfered with tribal gaming compacts. The New Mexico lawsuit against Kalshi shows how the dispute can affect not only state regulators but also tribal operators whose rights are grounded in compacts and federal law.
Maryland also moved against Kalshi after its lottery and gaming regulator issued a cease-and-desist letter. Kalshi responded in federal court, arguing the state’s order violated federal law and intruded on a regulatory system Congress created for derivatives markets. The Maryland case over Kalshi’s sports event contracts captured the central legal question now driving the national fight: whether these products are state-regulated bets or federally regulated swaps.
Kalshi pushes preemption before states act
Kalshi has not limited itself to defending against enforcement actions. It has increasingly used preemptive litigation to block states before regulators can issue penalties or force the company out of a market. That strategy was apparent when Kalshi filed a federal lawsuit against Utah officials, arguing that public comments from state leaders showed an imminent effort to enforce anti-gambling laws against the platform.
Utah is an important test case because it has no legal sports gambling. Kalshi’s suit named Gov. Spencer Cox, Attorney General Derek Brown and other officials, citing statements that characterized prediction market businesses as illegal in the state. The company argued that its status as a designated contract market regulated by the Commodity Futures Trading Commission placed it under federal commodities law, not state gambling prohibitions.
The Utah filing showed how the industry is trying to build favorable rulings before state enforcement hardens. Kalshi has brought litigation in several states, including Nevada, New Jersey, Maryland, Tennessee, New York, Ohio and Connecticut. The company’s position is that Congress gave the CFTC authority over event contracts traded on designated exchanges and that state gambling laws are preempted when applied to those federally regulated markets.
That argument has won some early procedural relief. In Maryland, Kalshi cited a temporary injunction against the Nevada Gaming Control Board as evidence that courts were beginning to examine the legality of the model more closely. But those early rulings do not settle the underlying issue nationwide. Instead, they have encouraged both sides to press for broader decisions that could define the boundaries between gambling law and commodities regulation.
Federal regulators raise the pressure on states
The dispute has become more consequential because the CFTC itself has stepped into the litigation. After Wisconsin sued several platforms, the commission sued Wisconsin to block enforcement, arguing that states cannot interfere with federally regulated derivatives markets. The agency said Congress gave it exclusive jurisdiction over derivative products, including event contracts traded on designated contract markets.
The CFTC’s Wisconsin complaint asked a federal court to declare the state’s gambling laws invalid as applied to such trading and bar officials from enforcing them. The commission’s intervention elevated what might have been a state gambling dispute into a federalism fight. If courts accept the CFTC’s view, state regulators could be limited in their ability to stop sports contracts offered by federally registered exchanges, even in states with restrictive gambling laws.
The agency has taken a similar stance in other jurisdictions, including New York, Arizona, Connecticut and Illinois, and has filed amicus briefs in appellate matters. A federal court in Arizona issued a temporary restraining order blocking a state criminal prosecution involving a CFTC-regulated company, adding to the perception that federal courts may be receptive to preemption arguments at least in the early stages.
For Kentucky, that federal backdrop matters. Any state lawsuit against Kalshi or Polymarket is likely to face arguments that the products are not sports bets but financial contracts overseen by the CFTC. Kentucky’s case therefore is not only about whether residents can trade on the outcomes of games. It is also about whether state gambling frameworks can reach companies that present themselves as financial exchanges.
Tax, consumer protection and market access are at stake
The policy stakes are larger than product classification. Licensed sportsbooks operate under state rules covering age verification, responsible gambling tools, geolocation, advertising, data reporting and tax obligations. Prediction market operators argue they are subject to federal oversight, but states contend that framework was not designed to address the risks of mass-market sports wagering.
Kentucky’s allegations that sports betting accounts for much of Kalshi’s trading volume go to that point. A platform can describe contracts as event-based derivatives, but regulators are focused on consumer behavior and economic function. If users are staking money on whether a team wins, a player achieves a statistical outcome or a sporting event unfolds in a particular way, states say the activity competes directly with licensed sportsbooks.
Affiliate relationships add another layer. By naming companies such as Coinbase in connection with Kalshi and pointing to Robinhood and Webull in relation to Polymarket, Kentucky is testing whether partners that provide access or share in fees can be pulled into gambling enforcement. That could make brokerages, crypto exchanges and consumer finance platforms more cautious about distributing event contracts until courts provide clearer guidance.
The sweepstakes casino claim against VGW broadens the theme. Like prediction markets, sweepstakes casinos have grown by relying on legal distinctions that separate their products from regulated gambling. States increasingly are challenging those distinctions when products look and feel like casino gaming to consumers. Kentucky’s combined approach suggests regulators are watching business models that scale quickly without entering the traditional licensing system.
A legal patchwork could shape the next market
The immediate result is likely to be more litigation, not quick uniformity. States with legal sports betting have financial reasons to protect licensed markets. States without sports betting may object on moral, legal or consumer protection grounds. Tribal gaming states may view event contracts as a threat to compact exclusivity. Meanwhile, the CFTC has an institutional interest in defending its jurisdiction over designated contract markets.
That mix creates a fragmented legal map in which temporary injunctions, cease-and-desist orders and dueling federal and state suits determine market access. Operators may continue to seek preemptive relief in federal court, while attorneys general try to frame the products as illegal gambling before they become normalized. Distribution partners will have to assess whether revenue from event contracts justifies legal and reputational risk.
Kentucky’s lawsuits therefore should be read as part of a broader campaign rather than isolated enforcement. The state is joining others that argue innovation in market structure cannot be used to bypass gambling laws. The operators and the CFTC counter that states are trying to regulate federally supervised financial products because they disapprove of the subject matter. Courts now must decide which theory controls.
Until that happens, prediction markets and sweepstakes operators will remain in a contested zone between gambling regulation and financial technology. Kentucky’s move adds another major jurisdiction to the fight and increases the chance that the unresolved boundary between sports betting and event trading will be set not by legislatures but by federal judges.
