Rhode Island and Prediction Market Operators Trade Legal Blows

• Rhode Island Attorney General Peter F. Neronha filed lawsuits against Kalshi and Polymarket alleging illegal sports betting
• Neronha filed the lawsuits in Rhode Island Superior Court
• Kalshi fired back with a lawsuit of its own against the attorney general

The Rhode Island Attorney General and the largest prediction market operator in the country are embroiled in a legal standstill.

Rhode Island Attorney General Peter F. Neronha last week filed lawsuits in Rhode Island Superior Court against both Kalshi and Polymarket, alleging the prediction market operators offering sports event contracts is tantamount to illegal sports betting in the state.

Kalshi threw a counterpunch shortly after, filing its own lawsuit in response against Neronha and Christina Tobiasz, gaming and athletics administrator for the Rhode Island Department of Business Regulation.

‘No Difference’ Between Sports Betting, Event Contracts

Neronha’s lawsuits request the Rhode Island Superior Court declare Kalshi and Polymarket’s sports-related event contracts amount to sports betting and are therefore subjected to Rhode Island state gambling laws.

“There is no substantive difference between sports betting and ‘events contracts’ in this context; Kalshi and Polymarket know that, and we know that. 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,” Neronha said.

According to Neronha, by circumventing Rhode Island state law, Kalshi and Polymarket are depriving the state of Rhode Island State Lottery (RILOT) tax revenues. Since 2019, sports betting has resulted in nearly $2.8 billion in gross revenues.

The lawsuits seek a declaration that sports event contracts are “gambling” that should be subject to the constitutional voter referendum requirements, as well as
casino gaming” and “online sports wagering,” both of which are subject to RILOT regulation and operational control.

“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,” Neronha said.

Kalshi Files Own Lawsuit Against Rhode Island

On the same day Neronha filed his lawsuits, Kalshi filed a lawsuit in response against the attorney general. Filed in U.S. District Court District of Rhode Island, the lawsuit claims the Commodity Exchange Act (CEA) preempts state law and the Commodity Futures Trading Commission (CFTC) is the only regulatory body that has the power to regulate prediction markets in the U.S.

“An enforcement action by Rhode Island designed to prohibit Kalshi from offering contracts that federal law permits would intrude on the comprehensive federal scheme for regulating designated exchanges. Kalshi is a federally designated and approved derivatives exchange, subject to the CFTC’s exclusive jurisdiction. Kalshi offers consumers the chance to trade many types of event contracts, all of which are subject to extensive oversight by the CFTC and are lawful under federal law. The CFTC has the authority to initiate the review of, and under certain circumstances, prohibit the trading of, contracts listed on Kalshi’s federally regulated exchange,” Kalshi counsel wrote in the lawsuit.

Kalshi’s lawsuit against Rhode Island – and all of its lawsuits against state regulators and attorneys general – revolves around the central question of who regulates sports event contracts, and prediction markets, in general.

Companies such as Robinhood, Kalshi, and Crypto.com believe that state regulatory bodies do not have the right to intrude on the government’s “exclusive” authority to regulate prediction market, filing lawsuits in several states to defend its practices. These companies believe the CFTC is the only regulatory body that can legally block contracts from being offered to customers.

State gaming regulators maintain the markets need to be beholden to regulations, taxes, and license fees that sports betting and gaming operators are required to follow.