Kentucky Attorney General Russell Coleman has filed lawsuits against prediction-market platforms Kalshi and Polymarket, as well as social-casino operator VGW, accusing them of running unlicensed sports betting and gambling operations in the state. The complaints allege the companies bypass Kentucky's gambling laws, dodging consumer protections and taxes that regulated sportsbooks must follow.
The scale of the alleged violation
Coleman's legal action targets what he says is a huge, untaxed market. During a 2025 sample period, sports betting made up roughly 70% of Kalshi's trading volume, the attorney general's office claims. Across all three platforms, nearly $23 billion in contract volume last year was recorded — with 89% of that coming from sports wagering. The lawsuits argue those dollars should have been subject to Kentucky's gambling oversight and tax regime.
A clash over who regulates
Kalshi and Polymarket have pushed back, arguing they're federally regulated by the Commodity Futures Trading Commission and therefore not bound by state gambling laws. In a separate move, a coalition representing both companies has sued Kentucky over a new 14.25% excise tax and contracting restrictions the state imposed on prediction markets. The platforms contend that the CFTC has exclusive authority over event contracts, and that state-level interference threatens a federally approved market.
The CFTC itself has already taken aim at states trying to regulate prediction markets. The agency sued Arizona and Minnesota for moving against such platforms, asserting sole jurisdiction over event contracts. That federal-vs-state tension is now playing out in Kentucky's courtrooms.
VGW's defense
VGW, which runs social-casino games that Kentucky regulators classify as gambling, said it plans to defend itself vigorously. The company claims it operates lawfully and has robust consumer protections in place. The lawsuit, however, contends that VGW's sweepstakes-style games function as illegal gambling under state law, lacking the safeguards and tax contributions required of licensed operators.
The unresolved legal standoff
For now, the three companies face separate lawsuits in Kentucky state court. The outcome will likely hinge on whether judges view event contracts and virtual sweepstakes as gambling subject to state law, or as products falling under federal commodities oversight. With the CFTC already fighting states over the same question, the Kentucky cases could add another layer to a growing national dispute over who gets to regulate prediction markets.
