Kentucky Attorney General Russell Coleman filed three lawsuits Wednesday against companies operating sweepstakes casinos and prediction markets, accusing them of offering gambling products to Kentuckians while skirting state licensing, taxes and consumer protections.
The move thrusts the home of the Kentucky Derby — and a state whose gambling laws have long been shaped by the racing industry — into the national fight over who regulates prediction markets, putting the Trump administration at odds with a Republican-leaning state.
It also answers a lawsuit filed last week by a coalition of prediction market companies challenging Kentucky’s new 14.25% tax on their transaction fees.
Mr. Coleman’s office is targeting Kalshi and Polymarket, along with VGW and its sweepstakes casino platforms — Chumba Casino, Global Poker and LuckyLand Slots — in three circuit-court filings.
Prediction markets let customers buy and sell event contracts, a type of derivative tied to real-world outcomes such as elections or economic indicators.
The state argues the platforms are simply unlicensed gambling operations. In a three-month snapshot reviewed by the attorney general, roughly 70% of Kalshi’s trading volume involved sports wagering, which Kentucky says makes it an unlicensed sportsbook in a tightly regulated market.
Mr. Coleman told The Washington Times the prediction market companies have dressed up gambling in financial language, but the underlying product is unchanged.
“You can call bourbon an adult beverage distilled from corn, but it’s still bourbon,” the Republican said. “You can change the nomenclature, but at the end of the day, if you look at the nature of what these are — this is gambling.”
Earlier this year, Kentucky’s General Assembly passed the first-in-the-nation 14.25% excise tax on prediction market fees. Kalshi, Crypto.com and Polymarket US responded by forming the Coalition for Fair Markets and suing to block it, arguing that states cannot impose punitive taxes on federally regulated derivative exchanges.
“They sued us,” Mr. Coleman said. “This is simply a response.”
Kalshi argued Tuesday that the federal government, not the states, is in charge of regulating prediction markets.
“Kalshi is a federally regulated exchange — the CFTC is our regulator, not the states,” said Kalshi spokesperson Jacki McGavick. “Courts have already recognized this, and we’re confident they will here too.”
Kentucky is not acting alone.
Last month, 41 state attorneys general — from both parties — urged Commodity Futures Trading Commission Chairman Michael S. Selig, a Trump appointee, to affirm that states retain authority over gambling within their borders.
Kentucky also has joined amicus briefs defending Ohio and Tennessee’s gaming laws against challenges from Kalshi.
Courts nationwide are now weighing how much authority states have over products that many regulators still consider resembling online betting.
The litigation puts Mr. Coleman at odds with his own party’s leadership, but in line with other Republican attorneys general. President Trump has backed the prediction market position, and Donald Trump Jr. — an investor and strategic adviser to Polymarket — has also advised Kalshi. Mr. Coleman called the dispute an outlier in an otherwise strong relationship.
“We’re going to continue to collaborate with the Trump administration on rebuilding our economy, on border security — we have a great partner,” he said. “This is just an outlier where we take a different position in terms of federal preemption versus the state sovereignty here.”
The sweepstakes casino suit focuses on VGW’s virtual coin model, which the attorney general argues functions like casino chips. Because VGW is not licensed under Kentucky law, Mr. Coleman says it’s running illegal gambling operations.
He also warned that the platforms are designed to hook young users, citing data showing more than half of 17-year-olds are gambling online without safeguards.
“We have young people with a prefrontal cortex still developing in droves on these platforms without the kind of mitigation that we have in regulated gaming,” he said.
All three suits are brought under Kentucky’s Consumer Protection Act, the state’s gambling statutes and its 19th-century Loss Recovery Act, which allows triple damages — meaning consumers could recover three times their losses.
Mr. Coleman said his goal is not to drive the companies out but to force them to operate legally.
“We want them to be regulated,” he said. “We want the ability to protect our people.”
A Polymarket spokesperson pushed back on the lawsuit, saying, “This action runs counter to the CFTC’s established framework for regulating prediction markets. We look forward to addressing these claims through the appropriate legal process.”
A VGW spokesperson said the company “respectfully” rejects the attorney general’s claims and plans to “vigorously” defend against the lawsuit.
“We have lawfully operated in the U.S. for more than a decade, delivering online Social Plus games to millions of Americans who value the freedom to enjoy the free, fun entertainment that this lawsuit effectively targets,” the spokesperson said. “With values including ’our players come first’ and ’we do what’s right,’ we pride ourselves on creating not only the best games, player experiences and entertainment, but ensuring this is done safely and responsibly with robust consumer protections.”
CFTC did not respond to a request for comment.
