Kentucky sues Kalshi over sports prediction markets

BOWLING GREEN, Ky. — Kentucky Attorney General Russell Coleman is suing prediction-market company Kalshi, accusing the platform of operating an unlicensed sportsbook in the state.

Kalshi allows users to buy and sell contracts based on whether an event will happen, including contracts tied to sports outcomes.

Kentucky argues those contracts amount to sports wagering and should be regulated under the state’s gambling laws.

Coleman said Kalshi and fellow prediction-market company Polymarket are “operating illegal sportsbooks in Kentucky and breaking our laws.”

Kalshi disputes that characterization.

Sara Slane, Kalshi’s head of corporate development, said the company operates as an exchange rather than a traditional sportsbook.

“We are not the ones that set the lines. We do not win when customers lose,” Slane said. “We are simply an exchange that allows two people to sit on opposing sides of a yes or no outcome.”

Kalshi is regulated by the Commodity Futures Trading Commission, a federal agency that oversees derivatives markets.

The dispute also involves how Kalshi should be taxed in Kentucky.

Kentucky’s law establishes a 14.25% tax on sports wagering, while Kalshi argues that rate does not fit its business model because the company makes money through transaction fees rather than by taking the opposite side of a customer’s bet.

Slane said Kalshi is willing to pay taxes in Kentucky but wants lawmakers to consider a different structure.

She pointed to North Carolina, which has established a 6% tax on prediction-market operators’ net trading-fee revenue.

“We do think that North Carolina’s tax is way more in line with what our business model reflects,” Slane said.

The legal dispute expanded beyond Kentucky’s lawsuit against Kalshi on June 23, when the Commodity Futures Trading Commission sued Kentucky in federal court.

The CFTC argues federal law gives it exclusive jurisdiction over federally regulated prediction markets and that Kentucky’s efforts to regulate Kalshi improperly interfere with federal authority.

The federal lawsuit names Kentucky, Gov. Andy Beshear, Coleman, Kentucky Revenue Commissioner Thomas Miller and the Kentucky Horse Racing and Gaming Corporation.

Kalshi’s lawsuit in Kentucky state court has also been moved to federal court.

The competing lawsuits put the regulation of prediction markets at the center of a broader state-versus-federal dispute.

Kentucky argues Kalshi’s sports contracts are gambling and subject to state law, while Kalshi and the CFTC maintain that federally regulated prediction markets fall under federal jurisdiction.

The cases remain ongoing, and no final ruling has determined whether Kalshi’s sports prediction contracts can legally operate in Kentucky.