Dueling lawsuits: KY AG sues prediction market companies a week after they sue over taxes
A coalition of prediction market companies is suing Kentucky over its tax rate. (Photo illustration by Getty images)
Editor’s note: Shortly after the Lantern posted its story on the tax lawsuit by prediction market companies, AG Coleman announced his lawsuit against them.
Republican Kentucky Attorney General Russell Coleman is suing two prominent prediction market companies over allegations that they operate unlicensed and illegal sports gambling operations.
The lawsuits announced filed Wednesday come less than a week after a group representing those prediction market companies Polymarket and Kalshi — where people can wager on the outcomes of events, including sports games — sued to block Kentucky’s recently enacted tax on prediction market transactions.
Coleman in a provided statement said the Kalshi and Polymarket were “operating illegal sportsbooks in Kentucky and breaking our laws.”
“These multi-billion dollar corporations and their legal fictions don’t pass the sniff test,” Coleman said in his statement. “As one of our state legislative leaders said it best, ‘If it looks like a duck and quacks like a duck…’”
Coleman also alleges the companies and their affiliates offer few or no resources to help problem gamblers, something that is required under state law. Sports gambling, legalized in 2023, is regulated by the Kentucky Horse Racing and Game Commission.
The Republican is also suing VGW Holdings, a company that operates online casino-style games, alleging its use of virtual tokens is an illegal sweepstakes casino operating within the state.
Connor Brandi, a spokesperson for Polymarket, in an emailed statement said Coleman’s action “runs counter” to the federal framework for regulating prediction markets.
“We look forward to addressing these claims through the appropriate legal process,” Brandi said.
Jacki McGavick, a spokesperson for Kalshi, in an emailed statement said prediction markets are regulated by the federal government, not state governments.
“Courts have already recognized this, and we’re confident they will here too,” McGavick said.
An email requesting comment on the litigation sent to a media contact for VGW was not immediately returned.
These lawsuits come after a group representing the prediction market companies sued to block a tax on prediction market transactions.
That lawsuit filed on June 12 in Franklin Circuit Court by the Coalition for Fair Markets calls the state’s 14.25% excise tax on prediction markets unconstitutional and discriminatory.
The coalition wrote the state’s “taxation scheme confirms its intent to privilege incumbent in-state industry,” pointing to how the wagers on horse races in the state have a lower 9.75% tax. The group argued the tax, enacted by state lawmakers, is unconstitutional special legislation that “targets prediction market operators alone.”
Republican Kentucky Attorney General Russell Coleman in a statement said he would also defend the tax and Kentuckians “from out-of-state companies that seek to cancel Kentucky’s sports betting laws.”
“In any courtroom, the attorneys with the AG’s Office are the odds-on favorite to win,” Coleman said. “Together with the policymakers in the General Assembly and the regulators at the Kentucky Horse Racing and Gaming Commission, we are well-positioned to protect this Commonwealth, just like we’ve been doing for over a century.”
The Kentucky General Assembly passed the tax on prediction market transactions through House Bill 757 during this year’s regular legislative session. The new tax was among numerous other provisions in the sprawling 386-page bill, a piece of legislation that ballooned in size in the final days of the session.
Sen. Chris McDaniel, R-Ryland Heights, the chair of the Kentucky Senate Appropriations and Revenue Committee, had told reporters in April lawmakers aimed to tax companies such as Polymarket, not commodities markets. Prediction markets and commodity markets are regulated by the federal Commodity Futures Trading Commission.