Prediction market platforms Kalshi and Polymarket are involved in legal entanglements with yet another state.
Key Takeaways
- The Rhode Island Attorney General says residents are affected by unlicensed prediction market companies.
- Kalshi filed a preemptive lawsuit against the Ocean State.
- This is one of many legal battles in which trading exchanges are involved.
Both Kalshi and Rhode Island filed lawsuits against each other late last week. Attorney General Peter Neronha sued Kalshi and Polymarket in an attempt to block the operators from offering sports event contracts in a state with legal, regulated sports betting.
“There is no substantive difference between sports betting and ‘events contracts’ in this context; Kalshi and Polymarket know that, and we know that,” Neronha said in a statement, adding, “We demand Kalshi and Polymarket stand down, abide by our state laws, and disgorge their profits, and this lawsuit is the first step towards that goal.”
Kalshi preemptively filed a lawsuit to keep Rhode Island from prohibiting operations, according to the Providence Journal. Kalshi is arguing its derivative markets are regulated by the Commodity Futures Trading Commission at the federal level, not by a state.
Enjoying Covers content? Add us as a preferred source on your Google account“Event contracts are a valuable means to hedge against event-driven volatility,” the complaint states. “Advertisers, sponsors, television networks, local communities, sportsbooks, and others all stand to gain or lose substantial sums depending on the outcomes of sports events. Sports event contracts thus offer these entities opportunities to hedge their exposure.”
Calling it illegal gambling
Rhode Island has joined a list of more than a dozen states taking legal action against prediction markets and alleges in the court filing that Kalshi and Polymarket are operating as illegal gambling sites based on the state’s laws.
The Ocean State claims sports event outcomes and traditional sports betting markets are “fundamentally the same,” which should allow Rhode Island to block the prediction market sites.
“The problem here is that Rhode Island State law heavily regulates gambling, for good reason, and we allege that Kalshi and Polymarket are evading our laws,” Neronha said. “And Rhode Islanders are losing out.”
Effects of prediction markets
Rhode Island online sports betting was legalized in 2019 and is run by the state’s lottery. Bally's received a license last week to become the second mobile operator.
Sports betting has generated $2.8 billion for the Ocean State, and the Attorney General claims Kalshi and Polymarket have cut into the state's third-largest revenue stream, highlighting an 8% betting decrease between 2024 and 2025 as evidence.
This, Neronha says, has led to affected state-program funding that “serves Rhode Islanders every day.” The state also pointed to problem gambling in its case.
“Further, we allege that these platforms offer those susceptible to problem gambling unfettered access, increasing the potential for the devastating effects of gambling addiction,” Neronha said.
Widespread battles
Prediction markets burst onto the scene during the 2024 Presidential Election and have exploded across the U.S. since sports contracts began being offered in early 2025. The legality of of such contracts could eventually be determined by the Supreme Court.
Massachusetts and Nevada have won multiple court battles against Kalshi, which has received backing from the Commodity Futures Trading Commission. The federal agency has sued several states, including Illinois and Wisconsin in support of prediction market platforms.
The Badger State passed a law making prediction markets illegal, and tribal gaming nations are also attacking exchanges for offering sports contracts.
In related prediction market news, Kalshi, Polymarket, and other trading exchanges came under fire at a U.S. Senate hearing as lawmakers expressed concerns about insider trading.
