TL;DR:
- The contract volume in prediction markets reached approximately $23 billion over the past year.
- Sports betting accounted for nearly 70% of Kalshi’s trading volume during a 2025 sample period.
- The state of Kentucky passed a law in April imposing a 14.25% excise tax on the transaction fees of these platforms.
The Kentucky Attorney General, Russell Coleman, filed a lawsuit against the platforms Kalshi and Polymarket. They are accused of operating unlicensed and illegal sports betting and gambling systems within the state. The litigation, formalized this Wednesday, intensifies regulatory pressure on prediction markets in the United States, adding the virtual gaming firm VGW to the legal actions driven by the local administration. Authorities allege that these companies evade consumer protections and tax regulations applied to the traditional betting sector.
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.
More: https://t.co/tFeKWMzeKo pic.twitter.com/4yMGwWUQuj
— Attorney General Russell Coleman (@kyoag) June 17, 2026
The Conflict Over Regulation and State Taxes
A Kentucky judicial source reported that the platforms allow users to place wagers on game winners, point spreads, and player statistics. The complaint details that the sports business represents the largest share of activity in these markets. According to data collected by the state, 89% of the nearly $23 billion in contract volume registered last year came directly from sports wagering.
Coleman’s judicial offensive comes immediately after a coalition representing Kalshi, Polymarket, and Crypto.com sued Kentucky in a state court to block a new tax restriction. The legislation approved by the Kentucky General Assembly set a 14.25% excise tax on the commissions of these platforms. Prediction market operators argue that the levy is discriminatory and unconstitutional, exceeding the 9.75% tax burden faced by the local horse racing industry.
For his part, the state attorney general stated that the government’s lawsuit is a direct response to the legal appeals filed by the companies. Data from the prosecutor’s office suggest that the platforms employ advanced financial terminology to mask activities that, under current state laws, constitute unregulated commercial betting.
Corporate Defense and CFTC Jurisdiction
The affected firms reject the charges and maintain that their activity is regulated at the federal level. Kalshi spokesperson Jacki McGavick eclared that the U.S. Commodity Futures Trading Commission (CFTC) stands as their sole legitimate regulator, a position that, she indicated, has already been previously backed by federal courts. Echoing this, Polymarket representatives declared that the lawsuit contradicts the regulatory framework established by the CFTC for event contracts.
The federal agency consistently maintains that it holds exclusive authority over event-based derivatives, which has sparked similar legal disputes with states such as Arizona and Minnesota. The representative of the gaming firm VGW also confirmed that they will vigorously defend their position, arguing that they have operated legally in U.S. territory for over a decade under a social gaming model with robust consumer protections.
The outcome of these cases in the circuit courts will determine whether state gambling regulations prevail over the oversight of the federation’s commodity agencies. The progress of the litigations will mark a verifiable milestone for the event derivatives industry in the upcoming court hearings scheduled in Kentucky courts.
