Rhode Island has filed a lawsuit against prediction markets platforms, Kalshi and Polymarket, alleging the companies are running illegal, unlicensed sports betting operations that deprive the state of tax revenue.
The legal action, announced by Rhode Island Attorney General Peter Neronha, represents a significant escalation in the ongoing clash between state gambling regulators and the rapidly expanding prediction market industry.
Rhode Island vs prediction markets
The state's complaint, filed in Rhode Island Superior Court, seeks a permanent injunction to block both platforms from offering sports-related "event contracts" to state residents.
Neronha is also seeking effective compensation for lost tax dollars and for the companies' profits to be given up.
"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.
"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," he added.
"And Rhode Islanders are losing out."
Claims of sports betting wagers dipping due to prediction markets popularity
According to Neronha, the Rhode Island State Lottery recorded an 8% decline in sports betting handle between 2024 and 2025, a slump the attorney general directly attributed to the increasing proliferation of unregulated prediction markets.
The Ocean State legalized online sportsbook activity in 2019 and since then it has represented the state's third-largest revenue stream.
Rhode Island heavily restricts sports gambling to state-sponsored platforms and levies a 51% tax rate on sports betting gross gaming revenue (GGR).
The state further alleged that Kalshi utilizes leaderboards and gamified design choices that mimic traditional sportsbooks, exposing users to the risks of unregulated gambling addiction.
Kalshi returns the serve
New York-based Kalshi launched a preemptive legal offensive, filing its own lawsuit against Rhode Island in the federal court.
Kalshi argued that its markets are derivatives regulated at the federal level by the Commodity Futures Trading Commission (CFTC), placing them beyond the jurisdiction of individual state gambling laws.
"Event contracts are a valuable means to hedge against event-driven volatility," Kalshi stated in its legal complaint.
A federal court hearing regarding Kalshi's motion for a temporary restraining order against the state was scheduled for Tuesday before US District Judge Mary S. McElroy.
Meanwhile, Polymarket has moved to transfer the state's lawsuit against it to federal court.
This latest dispute, this time in Rhode Island, reflects a broader, nationwide jurisdictional battle over the reach and penetration of the multi-billion dollar prediction market industry, which has exploded in popularity.
Much of this has been on the back of high-profile election and sports trading contracts over the last two years.
States such as Iowa, Massachusetts, Nevada, Utah and Washington have already pursued aggressive crackdowns on the platforms, but federal regulators have pushed back.
The CFTC recently filed legal action against Minnesota following that state's legislative attempt to ban prediction markets, arguing federal preemption rules apply.
