Rhode Island AG goes after Kalshi, Polymarket insisting gambling laws apply

• Rhode Island is taking prediction markets head-on, and the legal battle could reshape the sector’s future
• Kalshi and Polymarket say they’re trading platforms, not sportsbooks. Regulators strongly disagree
• Just before Rhode Island struck, Kalshi launched legal action of its own, escalating the standoff even further

The perennial tug-of-war between regulators and prediction markets in the United States continues, and not least after Rhode Island’s Attorney General has taken legal action against sector players Polymarket and Kalshi.

The legal argument is a familiar one. Sports event contracts offered by prediction markets should be regulated under the state’s gaming watchdogs, meaning that by not having a legitimate license, these platforms are breaching laws and wading into murky legal waters.

Rhode Island becomes the latest arena of prediction market conflict

Prediction market platforms have responded by delivering the same argument - that states have no power over their products, which fall under the purview of the Commodity Futures Trading Commission (CFTC).

The latter agrees to the point where the CFTC has pursued legal action against individual states, governors, and attorneys general, and most recently, against Minnesota, which became the first state in the US to outlaw and criminalize platforms that offer sports event contracts specifically.

In a 32-page complaint filed on Thursday, May 21, in Providence County Superior Court, Rhode Island AG Peter Neronha delivers a similar argument, saying that Kalshi and Polymarket are using event contracts to "disguise" the fact that they are "sports gambling platforms."

According to Neronha, the product offered by these platforms can be equated to "online sports wagering" and "casino gaming." In a press statement shared by his office, Neronha adds:

"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."

According to the AG’s officer, Kalshi and Polymarket are hewing too closely to traditional sports betting products, and offer real-time updates on betting activity, as well as similar "betting options."

Backing Responsible Gambling does not mean you are a gambling company

Both platforms have repeatedly disagreed with the language that describes them as gambling products, insisting that they are conducting trades and that they do not set the odds themselves.

Neronha similarly claims that Kalshi and Polymarket lead to "addictive behavior."

"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," Neronha added.

There have been conflicting signals from the platforms themselves. While they have maintained their stance adamantly, Kalshi recently joined the National Council on Problem Gambling (NCPG), the first prediction market operator to have done so.

The NCPG deals exclusively with advancing research and awareness around problem gambling. In the meantime, a recent U.S. Senate Committee hearing highlighted the implied risks of engaging in prediction markets and what it could mean for consumers, as presented by Dr. Harry Levant, the Public Health Advocacy Institute’s (PHAI) Director of Gambling Policy.

Oh, but the twist - Kalshi preempts with litigation of its own

However, Kalshi has not sat idly waiting for Rhode Island to mount its legal crusade. In fact, the company filed litigation of its own on Wednesday, May 20, aware that the Attorney General’s office is preparing a move against it.

"The threat of enforcement is heightened by the fact that Defendants have refused to provide Kalshi with assurances of non-enforcement, despite Kalshi’s endeavors to initiate dialogue to assuage any of the State’s concerns," the complaint states.

In the meantime, the global regulatory landscape has been no less easy on prediction market platforms. Polymarket was blocked in Indonesia recently, and South Korea has opened a probe into the company to determine if its products amount to illegal gambling.

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