Events in Rhode Island Thursday underscored the importance of which type of court ultimately hears prediction market lawsuits. Kalshi sued Rhode Island in the U.S. District Court for the District of Rhode Island, while on the same day, the state sued both Kalshi and Polymarket.
Ultimately, the legal status of sports event contracts — which has divided district courts — will probably only be settled by the Supreme Court, which has not yet taken on a prediction market case, and is not expected to do so until 2027 or 2028.
But a key question before then is whether those contracts can continue to be listed in states that argue they are illegal until the Supreme Court decides on their legality.
Getting the case before a state court appears to offer a quicker path to an actual ban, based on action elsewhere. In the federal court system, even when the states have won initial victories, prediction markets have generally been able to pause enforcement while rulings go through appeals.
AG says prediction markets offer ‘unfettered access’
In a press release, Rhode Island Attorney General Peter F. Neronha said that Kalshi and Polymarket offer “unfettered access” to those at risk from problem gambling.
“There is no substantive difference between sports betting and ‘events contracts’ in this context; Kalshi and Polymarket know that, and we know that,” he wrote. “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.
“And Rhode Islanders are losing out. While these private companies continue to profit exponentially off hard-working people, the State’s third largest revenue stream is detrimentally affected, which means less money to fund critical parts of programs that serve Rhode Islanders every day.
“Further, we allege that these platforms offer those susceptible to problem gambling unfettered access, increasing the potential for the devastating effects of gambling addiction. 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.”
State’s complaint
State-regulated sports betting in Rhode Island is currently a monopoly, with only Sportsbook Rhode Island — owned by the Rhode Island Lottery and powered by IGT and William Hill — allowed to operate.
Prediction-Markets-Compl.-FILED-5.21.26The state says that Kalshi and Polymarket “have begun to advertise and offer to Rhode Islanders a form of betting completely outside of the State’s tightly-regulated gambling framework: so-called ‘event contracts’ on ‘prediction markets.’”
The complaint says that Kalshi and Polymarket’s products contain both the “classic hallmarks” of gambling and “a host of other features designed to resemble a sportsbook.”
It claims that Kalshi “bombards users with a constant flow of updates on what wagers other users are placing across the platform, a design mechanism known to trigger gambling behavior.”
The complaint also notes that Kalshi and Polymarket believe their products to be legal in Rhode Island. It said that this amounts to an “actual controversy” that is “ripe for adjudication under the Uniform Declaratory Judgments Act.” That is a law that allows a court to declare an activity’s legal status before having to make a full judgment on damages or enforcement.
Kalshi federal lawsuit
Kalshi said it filed the lawsuit when it became clear that Rhode Island was planning to take action against the business imminently. It said the state’s “intent to bring an enforcement action against Kalshi is clear.”
Kalshi-RIKalshi’s complaint says that its representatives met with Neronha and his staff Wednesday.
“During this meeting, the Attorney General and staff asked a number of pointed questions and made clear that Defendants believe that Kalshi’s federally regulated offerings do not comply with Rhode Island gaming laws,” the complaint says. “When Kalshi sought assurances that the Rhode Island Attorney General did not intend to bring an enforcement action against Kalshi, the Attorney General made clear that Kalshi would not receive any advanced notice before the state filed an enforcement action against the company.”
As usual, Kalshi argues that state gambling laws are preempted by the federal Commodity Exchange Act (CEA) which governs prediction markets. It pointed to the history of states trying to regulate traditional commodity futures as gambling and the objective of the CEA to create a unified federal framework as proof that this is the case. Both arguments have been regular features of Kalshi court briefs.
State-court lawsuits often successful
States have had a strong record so far when suing prediction markets in state court. Nevada is the only state to actually get Kalshi to stop offering sports contracts to its residents, doing so with an April temporary restraining order, which was later converted to an injunction. Massachusetts also won an injunction to ban these contracts, which is not yet in effect while Kalshi appeals.
Kalshi will likely try to ensure that the federal court, which may be more open to arguments about federal law preempting state law, hears the case.
When states have sued prediction markets, futures regulator the Commodity Futures Trading Commission (CFTC) has often stepped in, and itself tried to sue the state. The CFTC has already sued Arizona, Connecticut, Illinois, New York, Wisconsin, and most recently Minnesota, after it passed a bill banning prediction markets.
It has not yet filed a lawsuit against Rhode Island.
