Kentucky Sues Prediction Markets on ‘Illegal Sports Betting’ Charge
Kentucky is the latest state to sue prediction markets on charges of “illegal sports betting.”
Kalshi and Polymarket are among the prediction market big hitters to come under attack in the Bluegrass State. However, Kalshi’s affiliates, including Coinbase, are also named.
Kentucky Attorney General Russell Coleman says the companies are engaging in sports betting without a state license. Pushback from the prediction markets is certainly expected.
At a Glance:
- Kentucky AG serves three lawsuits against prediction markets, affiliates, and a sweepstakes casino
- Move follows attempt to tax prediction markets under state rules
- “Misleading” advertising also cited in lawsuit
- Kentucky has had regulated sports betting since 2023
Gambling ‘without state regulation’ attacked
Coleman’s attack on prediction markets follows the pattern seen in other states this year.
The key argument is that prediction markets, the attorney-general says, offer sports betting without the correct license.
In a statement, Coleman said: “Kalshi and Polymarket are operating illegal sportsbooks in Kentucky and breaking our laws.
“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. …’”
The federal CFTC versus state-regulated sportsbooks
Kentucky legalized retail sportsbooks and online sports betting in 2023.
The Kentucky Horse Racing and Gaming Corporation (KHRG) oversees regulation for sports wagering. Residents can bet on sports on mobile devices or in person at retail sportsbooks.
However, the advent of prediction markets is riling state lawmakers, such as Coleman.
Under federal law, the Commodity Futures Trading Commission (CFTC) regulates prediction markets as derivatives. In addition to financial markets, entertainment, and politics, platforms like Kalshi also offer trading on sports outcomes.
The clash has led to a wave of lawsuits and countersuits in 2026 alone. Minnesota banned prediction markets, triggering a lawsuit from Kalshi against the state.
Sweepstakes ban tacked on in wider gambling move
Kentucky is also targeting online sweepstakes casinos. One of the lawsuits opened this week is against VGW, the major operator behind platforms like Chumba Casino.
For now, it’s possible to access a range of sweepstakes casinos while the lawsuit progresses through the courts.
Sweepstakes casinos follow a dual-currency model. While it’s free to play slots and games, it’s possible to win Sweeps Coins through promotions. These do allow players to win coins, which can be redeemed for gift cards and other benefits.
However, the dual-currency model is, to some states with no online casino legislation, indistinguishable from real-money gambling.
Certainly, that’s the feeling in Minnesota, which is banning sweepstakes casinos and classifying them as unlawful online gambling.
And despite a reprieve, Oklahoma is pushing ahead with a total ban on sweepstakes casinos, effective November of this year.
The latest lawsuit suggests that more states are likely to follow Kentucky’s stance in 2026. Until a federal ruling falls one way or the other on prediction markets and sweepstakes casinos, expect more battles like this one.
