Federal courts are increasingly grappling with the legal status of prediction markets, as exchanges offering contracts on political, economic, and social events test the boundaries of federal commodities law. Litigation against the main players – Kalshi and Polymarket – is growing, and could spell trouble for the nascent and controversial industry.
Kalshi, Inc. was founded in 2018 and launched in 2021, and serves as a platform for placing bets on a seemingly infinite number of events. At the time of publication, users can bet on the winner of a college basketball game, to the winner of the 2028 Presidential election, and even on the price of bitcoin.
The company – and prediction markets generally – exploded in popularity in 2023 and 2024, especially in the context of the 2024 Presidential election. Kalshi has been involved in 22 federal lawsuits, all of which were filed in 2025 or 2026. Many of these lawsuits challenge the core of Kalshi’s business. One suit says that the company’s claims of being the “First Nationwide Legal Sports Betting Platform” demonstrates the company’s evasion of state gambling regulations. (The explosion in sports betting arises from Murphy v. NCAA, a Supreme Court decision that left sports gambling regulation to the states.)
Another putative class action lawsuit alleges that the platform violates Alabama law. A nascent consolidated litigation is aggregating cases alleging that the platform violates gambling regulations. Millbank represents Kalshi in the consolidated cases.
Polymarket offers a similar service as Kalshi – at the time of publication, featured bets include the winner of the Oscar for Best Picture and the fate of the government of Iran. The company was banned from operating in the United States until December 2025, as a result of action by the Commodity Futures Trading Commission (CFTC).
Perhaps as a result of this ban, Polymarket’s parent company Blockratize has faced less litigation – only nine cases. But soon after the ban was lifted, there were early signs of trouble – four lawsuits have been filed against it this month alone. All see Blockratize as the defendant, and one features the State of Nevada as the plaintiff. In that case, Blockratize is represented by Gibosn, Dunn & Crutcher as well as Dotson, Hayward & Vance.
Like the industry, these lawsuits are new. The regulatory environment is seen as favorable to prediction markets during the Trump administration, but as states and consumers continue to file claims, the outcome for these companies may not be a safe bet.
