Rhode Island is in the middle of a legal battle with prediction market platforms Kalshi and Polymarket. The state’s attorney general, Peter Neronha, filed lawsuits accusing the companies of illegally offering sports betting. Rhode Island only permits sports gambling through its state-run lottery. The AG says these platforms are bypassing that system.

Kalshi fired back immediately with a federal lawsuit. They argue their event contracts fall under federal rules, regulated by the Commodity Futures Trading Commission (CFTC). This means, Kalshi says, that only the federal government can regulate their sports event contracts—not individual states.

The state disagrees. Rhode Island claims there is no real difference between sports betting and the “event contracts” offered by Kalshi and Polymarket. According to the AG, these platforms are just using different names to dodge state gambling laws. The state wants a permanent court order to block them from operating in Rhode Island.

Prediction Markets and the Federal-State Clash

Prediction markets let users trade contracts based on outcomes of events. They’ve grown fast, especially with sports betting. Kalshi says these contracts help people manage risks tied to event outcomes. They point out that advertisers, sponsors, and broadcasters also rely on these markets to hedge financial risks.

But states see the rise of these markets as a threat. Rhode Island and others worry these platforms undercut regulated sportsbooks. Licensed sportsbooks pay state taxes and follow consumer protection rules. Prediction markets don’t always honor those rules, including self-exclusion lists for problem gamblers. The state argues that prediction markets could increase gambling addiction risks.

Rhode Island is not alone. Several states have taken legal action against these platforms. Minnesota passed a law banning prediction markets outright. Massachusetts, Michigan, Nevada, New Jersey, and Ohio have also challenged Kalshi and Polymarket. These battles often involve both state and federal courts.

Legal Complexities and What’s Next

The heart of the dispute is whether prediction markets are gambling or federally regulated financial contracts. Kalshi leans on the federal Commodity Exchange Act to claim immunity from state laws. But courts have split on this. Some rulings favor states, saying these contracts function like gambling. Others have sided with Kalshi, issuing preliminary injunctions blocking state enforcement.

Just recently, a federal appeals court rejected Kalshi’s and Polymarket’s requests to block gambling enforcement in Nevada and Washington. The judges said federal oversight doesn’t automatically shield them from state gaming laws. This split in court decisions raises the chances the U.S. Supreme Court might have to weigh in someday.

Meanwhile, the Trump administration has sued Minnesota to overturn its prediction market ban. They argue federal law should override state bans. This adds another layer to the battle over who controls prediction market regulation.

For players in Rhode Island, the lawsuits create uncertainty. Kalshi and Polymarket have kept operating in other states while challenging legal actions. But if Rhode Island wins, the platforms might have to block users from the state. That could happen within weeks of a court order.

The bigger issue is what this means for the sports betting industry. If prediction markets win, they could become a major alternative to state-licensed sportsbooks. That would shake up revenue streams and consumer protections. Licensed sportsbooks have pushed back hard, supporting state lawsuits to protect their turf.

Right now, bettors should stick to licensed sportsbooks for legal protection. The court fights will take months, maybe years, to resolve. Until then, the future of prediction markets in the U.S. remains uncertain.