Kentucky Sues Kalshi, Polymarket and VGW, Opening a Three-Front Gambling Fight

Kentucky Attorney General Russell Coleman filed three lawsuits in Franklin Circuit Court on June 17 against prediction-market operators Kalshi and Polymarket and sweepstakes casino company VGW, alleging all three run unlicensed gambling inside the state. The complaints seek court injunctions ordering the platforms to stop offering sports event contracts and sweepstakes play to Kentucky residents, plus actual and punitive damages for consumers who lost money. The filings push Kentucky into the widening state-versus-federal fight over whether event contracts on sports count as betting.

Coleman framed the prediction-market claims in plain terms. "Kalshi and Polymarket are operating illegal sportsbooks in Kentucky and breaking our laws. These multibillion-dollar corporations and their legal fictions don't pass the sniff test," he said, invoking a state legislator's line, "If it looks like a duck and quacks like a duck." Kentucky law routes all sports wagering through the Kentucky Horse Racing and Gaming Commission, and licenses are available only to the state's licensed horse racing associations, a structure that leaves no path for a federally registered exchange to book sports trades locally. The complaints also name affiliates that route order flow to the venues: Coinbase, which the state says shares in transaction fees on Kalshi, and Robinhood and Webull, tied to Polymarket. Coleman argues those platforms offer few or no responsible-gambling safeguards that Kentucky requires of licensed operators.

A new law sharpens the timing

The lawsuits land weeks before Kentucky's Wagering Consumer Protection Act takes effect on July 15, 2026. The statute imposes a 14.25% excise tax on prediction-market transaction fees and bars licensed Kentucky sportsbooks and horse racing associations from partnering with Kalshi or Polymarket. That matches the 14.25% rate Kentucky already levies on its regulated sportsbooks, an attempt to deny the prediction markets a tax advantage while shutting the only local distribution door, a licensed track partnership, before it can open. Horse racing sits apart from the dispute: pari-mutuel wagering runs under the federal Interstate Horseracing Act, which gives tracks intellectual-property rights over their racing content, which is why Kalshi and Polymarket could not list Kentucky Derby contracts this year even as they expanded into other sports.

Kentucky is one entry in a national scorecard that has split sharply by courtroom. The same federal-preemption argument has produced opposite results within months.

Kalshi and Polymarket rest their defense on the same federal-preemption claim that won in New Jersey. "Kalshi is a federally regulated exchange. The CFTC is our regulator, not the states," a Kalshi spokesperson said. Polymarket said the action "runs counter to the CFTC's established framework." That argument carried the Third Circuit ruling that shielded Kalshi from New Jersey, but it failed to stop a Nevada judge from forcing a pause, so Kentucky's Franklin Circuit Court inherits an unsettled question. The stakes for the venues are large: Kalshi was valued at $22 billion in a March funding round, and Polymarket raised at roughly $15 billion after Intercontinental Exchange committed up to $2 billion.

The sweepstakes front

The third suit targets VGW, among the largest sweepstakes operators, whose brands include Chumba Casino, Global Poker and LuckyLand Slots. Coleman alleges VGW runs an unlawful casino dressed as promotional social gaming, offering free-to-play slots and table games alongside a second virtual token, sweeps coins, that players buy and, after a set amount of play, redeem for cash. "This company may use new technology and a new scheme to hide, but the reality is the same. Our office has a duty to stop illegal gambling in Kentucky regardless of how it's packaged," he said. The complaint seeks the same relief as the prediction-market suits: an injunction plus consumer damages.

VGW said it will fight. "We respectfully reject the Kentucky Attorney General's claims and plan to vigorously defend this lawsuit. We have lawfully operated in the US for more than a decade," the company said, describing its products as free social games. The financial backdrop explains the resolve. VGW reported about $6.13 billion in global revenue for the year ended June 30, 2025 and profit of $491.6 million, though its US sweepstakes share has fallen from roughly 90% at peak to under 50% as rivals multiplied and states moved against the model. VGW has already retreated under pressure before, cutting off Chumba Casino and Global Poker for Canadian customers after October 23, 2025 to concentrate on the US, the same pattern of withdrawal that state-by-state crackdowns have forced on sweepstakes operators and their affiliates.

For affiliates and marketing partners, Kentucky now reads as a tightening market on both fronts. Sending traffic to prediction markets there carries fresh exposure: the July 15 law cuts off licensed-partner referrals and taxes the fee pool the affiliate economy depends on, and a court injunction would strand any revenue-share tied to sports contracts. On the sweepstakes side, the precedent is concrete rather than theoretical, because VGW has shown it will exit a jurisdiction rather than litigate indefinitely, as it did in Canada, which means commissions on Kentucky sweeps traffic could vanish on short notice if the company pulls its brands. The compliant counterparty list in Kentucky stays where state law puts it, with the licensed sportsbooks tethered to horse racing associations. Coleman's office has asked the court to settle all three cases before the conduct continues, and the new statute takes effect on July 15 regardless of how the lawsuits move.