Rhode Island Prediction Markets Face Legal Challenge

Rhode Island has become the latest US state to take direct legal action against prediction markets, filing a lawsuit that puts two of the industry’s biggest names squarely in its sights. Attorney General Peter Neronha filed the complaint in Providence County Superior Court, naming Kalshi and Polymarket as defendants and accusing both of running unlicensed sports gambling operations in violation of state law. The filing came on May 22. It was not the only lawsuit filed that day.

Kalshi Got There First

Kalshi anticipated the move. Earlier that morning, the New York-based company filed a federal lawsuit in the US District Court in Rhode Island against Neronha and state officials, seeking an injunction and emergency temporary restraining order to block any enforcement action. The filing landed at 12:03 p.m. Neronha filed back roughly four hours later.

Kalshi had met with the attorney general’s office the day before. According to its federal complaint, the company sought assurances it would not face enforcement without advance notice. Neronha offered no such assurance. Kalshi moved first thing the next morning.

The two lawsuits now run in parallel, one in state court, one in federal court, with opposite objectives. Kalshi wants a court to confirm that its products are federally regulated financial instruments beyond the reach of state gambling law. Rhode Island wants a court to declare the opposite.

A State with Skin in the Game

What sets the Rhode Island prediction markets dispute apart from similar fights in other states is the financial structure behind it. Sports betting in Rhode Island operates exclusively through the Rhode Island Lottery. There is no private operator competition. Every dollar that flows to Kalshi or Polymarket on a sports event contract is, in practical terms, a dollar not going to the state.

Neronha made that case with hard numbers. The Lottery’s sports betting handle dropped 8% from 2024 to 2025. He attributed that decline directly to the expansion of Kalshi and Polymarket’s sports event offerings. Since the state legalised sports betting in 2019, the Lottery has generated $2.8 billion in total revenue. Neronha described sports betting as Rhode Island’s third-largest revenue stream, and argued the continued operation of these platforms threatens it.

His statement put it plainly. Private companies are profiting exponentially while the state loses funding for critical public programs. The lawsuit demands both platforms stop operating in Rhode Island and hand back the profits they have made.

The Core Legal Argument

The legal fight over Rhode Island prediction markets mirrors a broader national dispute over how to classify sports event contracts. Kalshi and Polymarket maintain that their products are financial instruments, overseen by the Commodity Futures Trading Commission, and that federal regulation preempts state gambling laws. That argument has allowed both platforms to expand into states where traditional sports betting is not licensed.

Neronha rejected that framing outright. His position is that there is no substantive difference between placing a bet on a sports outcome and buying a sports event contract on a prediction platform. The product is the same, he argues. The regulatory wrapper is different. Rhode Island law does not distinguish between the two, and both platforms know it.

The attorney general also raised the issue of problem gambling. Regulated sportsbooks in Rhode Island operate under strict consumer protection requirements. Prediction platforms, he argues, offer no comparable safeguards. People vulnerable to gambling addiction can access Kalshi and Polymarket with no meaningful restrictions, and the state has no ability to enforce the responsible gambling standards it applies to licensed operators.

An Industry Under Mounting Pressure

The Rhode Island lawsuit did not arrive in a vacuum. Two days before the filings, Kalshi faced pointed questioning at a US Senate hearing on prediction market oversight. Senators raised concerns about platform advertising on social media and alleged that Kalshi had entered a partnership with a 15-year-old. Kalshi has pledged $1 million to the National Council on Problem Gambling, a move widely read as a response to the growing political scrutiny.

Other states have gone further. Arizona’s attorney general filed criminal charges against Kalshi for offering unlicensed election and sports contracts, a case currently paused under an injunction. Minnesota enacted legislation this month making it a felony to operate certain prediction markets in the state, a move that prompted the CFTC to sue the state’s governor. The pattern is accelerating.

For Rhode Island prediction markets users, the immediate situation remains uncertain. Both Kalshi and Polymarket are expected to contest the lawsuit, and court proceedings could run for months. The outcome will be watched closely by regulators in other states, as a ruling in either direction could set significant precedent on the key question of whether state gambling law reaches federally regulated prediction contracts.