The regulatory tug-of-war over U.S. prediction market platforms continues to widen. Kentucky has filed a lawsuit against Kalshi and Polymarket, accusing the two platforms of operating illegal sports betting businesses in the state and violating state laws.

The state government has accused illegal gambling.

Kentucky Attorney General Russell Coleman stated that both platforms are essentially illegal sports betting sites. The state government believes that the two companies failed to register as required by betting platform regulations, yet offered users products highly similar to sports betting.

The lawsuit alleges that Kalshi and Polymarket circumvented several state-level obligations by circumventing gambling platform registration requirements. These obligations included providing users with resources related to dealing with gambling addiction.

The platform claims it is subject to the jurisdiction of the CFTC.

Kalshi and Polymarket's core position is that the relevant contracts on the platform should be considered swap products and therefore subject to federal regulation by the U.S. Commodity Futures Trading Commission (CFTC), rather than being treated as gambling businesses by individual states.

The report noted that this stance has received support from the Trump administration. Recently, the US federal government and several states have been locked in a ongoing battle over regulatory power over prediction markets. The CFTC and the US Department of Justice have already sued some state governments that attempted to restrict such platforms, and have indicated they may file further lawsuits if more states take similar action.

Sixth Circuit rulings differ

Currently, the progress of cases concerning prediction markets varies across the United States. For example, in the Sixth Circuit, which covers the federal courts in Kentucky, Ohio, Tennessee, and Michigan, two district court judges have preliminarily supported state regulators, and one judge has preliminarily supported prediction market platforms.

This means that a unified judicial standard has yet to be established for the conflict of authority between state governments and federal regulators. With more states joining the lawsuit, this dispute over the legality of prediction markets will likely ultimately be decided by the U.S. Supreme Court.