Rhode Island Sues Kalshi and Polymarket: The State Revenue Argument Against Prediction Markets

On the morning of May 21, 2026, Kalshi's lawyers walked into U.S. District Court in Providence and filed a federal lawsuit against Rhode Island officials before the state could move first. They were four hours too late to change the narrative. By 4 p.m. that afternoon, Rhode Island Attorney General Peter F. Neronha had filed his own suit — in state court, against both Kalshi and Polymarket — and issued a public statement that cut to the chase: "There is no substantive difference between sports betting and 'events contracts' in this context; Kalshi and Polymarket know that, and we know that."

The dueling lawsuits made May 21 one of the most consequential days yet in the ongoing legal battle between prediction market platforms and state gambling regulators. But Rhode Island's case carries a dimension that most other state actions lack: a concrete revenue argument. Rhode Island doesn't just regulate sports betting — it runs a state-monopoly lottery that collects revenue from every sports wager placed in the state. When prediction markets siphon off bettors, the state budget feels it directly. And Rhode Island says it already has.

The Revenue Argument: A State Lottery's Existential Concern

Rhode Island legalized sports betting in 2019, and the Rhode Island State Lottery (RILOT) has operated as the exclusive vehicle for that market ever since. Since legalization, sports betting has generated $2.8 billion in revenue for the state — money that funds public programs across the Ocean State and constitutes Rhode Island's third-largest revenue stream.

Then prediction markets arrived. According to Neronha's complaint, RILOT has already observed an 8 percent decline in sports betting volume from 2024 to 2025, which the state attributes directly to competition from Kalshi and Polymarket's sports event contracts. That 8 percent figure is the lawsuit's central economic hook — and its clearest distinction from the legal arguments other states have made.

While attorneys general in Massachusetts, Maryland, Michigan, and elsewhere have challenged prediction markets primarily on consumer protection and gambling-law preemption grounds, Rhode Island's suit frames the threat in budget terms. The state has a direct financial stake in who captures sports wagering dollars, and it argues that letting Kalshi and Polymarket operate without RILOT oversight bleeds that stake dry.

"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 in his announcement.

The complaint goes further, arguing that prediction markets use gambling-style design to hook users — leaderboards, continuous updates on how other traders are positioned, and binary win/lose payoffs — and that the platforms themselves have described their products as "betting" and "wagering" in marketing materials and prior litigation. The AG's office cited studies suggesting online gambling carries the highest rates of compulsive behavior, with up to 15.8% of users exhibiting problem gambling patterns.

The Dueling Lawsuit Strategy

Kalshi didn't wait to be served. The company knew Rhode Island was coming.

According to Kalshi's federal complaint, its representatives met with AG Neronha and his staff on May 20 — the day before both suits were filed. During that meeting, the AG made clear that Rhode Island viewed Kalshi's event contracts as illegal under state law, and that no advance warning would be given before the state took enforcement action.

"In short, the Rhode Island Attorney General refused to provide any assurances that the state would refrain from enforcement," Kalshi's federal complaint states. "This information makes clear that Rhode Island views Kalshi's event contracts as illegal under its state laws and intends to act imminently against Kalshi's federally regulated business."

So Kalshi filed first — at 12:03 p.m. on May 21, in U.S. District Court in Rhode Island. The defendants named: Neronha, RILOT Director Mark Furcolo, and Gaming and Athletics Administrator Christina Tobiasz. The core argument: federal law under the Commodity Exchange Act preempts Rhode Island gaming authority over a CFTC-designated contract market.

Four hours later, Neronha filed in Providence County Superior Court — deliberately choosing state court rather than federal. That choice is strategic: state court keeps the case out of federal jurisdiction where CFTC preemption arguments have proven stronger, and it signals that Rhode Island views this as a state law violation, not a federal regulatory question.

The result: two simultaneous lawsuits in two separate courts, both naming some of the same parties, fighting over the same conduct from opposite legal frameworks.

What Rhode Island Is Asking the Courts to Do

The AG's complaint seeks three declarations from Providence County Superior Court:

1. Gambling subject to voter referendum. That Kalshi's and Polymarket's sports-related event contracts constitute "gambling" subject to Rhode Island's constitutional voter referendum requirement — meaning any legalization of a new gambling product requires voter approval, which prediction markets have never sought.

2. Casino gaming under RILOT. That these contracts constitute "casino gaming" subject to RILOT regulation and operational control.

3. Online sports wagering. That these contracts constitute "online sports wagering" subject to RILOT oversight and licensing requirements.

Beyond declarations, the suit seeks a permanent injunction blocking both platforms from offering sports event contracts in Rhode Island, plus restitution and disgorgement of profits already earned from Rhode Island users.

Polymarket and Kalshi have both denied the allegations, maintaining that their event contracts are financial instruments regulated at the federal level by the CFTC — not gambling products subject to state gaming law.

A Fight Playing Out Across the Country

Rhode Island's lawsuit is the latest chapter in a national legal conflict that has escalated sharply in 2026. The landscape matters for understanding where this one fits.

The strongest federal precedent in the platforms' favor came from the Third Circuit Court of Appeals on April 6, 2026, which ruled 2-1 in KalshiEX LLC v. Flaherty that the CFTC has exclusive jurisdiction over Kalshi's sports event contracts, preempting New Jersey's gaming enforcement. It was the first federal appellate court ruling to affirm federal preemption in this fight — a significant win for the industry.

But the Third Circuit covers only New Jersey, Pennsylvania, Delaware, and the U.S. Virgin Islands. Rhode Island sits in the First Circuit, which has issued no equivalent ruling. That means the state has room to argue on legal ground that hasn't yet been mapped by appeals courts.

The Trump administration has backed the platforms at the federal level. The CFTC sued Arizona, Connecticut, and Illinois on April 2, 2026, to block state enforcement actions, arguing that states "misapprehend" the nature of event contracts and that allowing state regulation violates federal supremacy. On April 24, the CFTC filed a similar suit against New York after that state's AG sued Coinbase and Gemini over prediction market activity. CFTC Chairman Michael Selig has said the agency "will continue to safeguard its exclusive regulatory authority over these markets."

At the same time, state opposition continues to mount. A bipartisan coalition of 38 state attorneys general filed amicus briefs supporting state regulatory authority. Minnesota enacted a law making it a felony to operate certain prediction markets without state licensing, prompting a CFTC lawsuit against Minnesota officials. Ohio's Casino Control Commission issued a $5 million fine notice to Kalshi in April. Arizona filed criminal charges — the first by any state — against Kalshi in March.

Rhode Island now adds a state with an unusually strong financial motivation to fight — and a suit that names both Kalshi and Polymarket simultaneously, the most recent action to target both platforms in a single filing.

What Users in Rhode Island Should Know Right Now

Neither Kalshi nor Polymarket has announced operational changes in Rhode Island as of May 26, 2026. Both platforms typically continue operating while litigation proceeds. The RI AG's lawsuit seeks a permanent injunction — not an emergency restraining order — meaning there is no immediate court order blocking access.

For Polymarket users in Rhode Island, the distinction in how the platform serves U.S. users matters. Sports event contracts accessible to U.S. residents are offered through QCX LLC d/b/a Polymarket US, a CFTC-regulated designated contract market. That is the entity affected by any Rhode Island state court order — not the global Polymarket platform, which operates separately and is geo-restricted for U.S. users.

Kalshi's sports event contracts are offered through KalshiEX LLC, a CFTC-registered designated contract market and clearing organization. Kalshi's federal preemption argument — that CFTC designation as a DCM insulates it from state gaming enforcement — has succeeded in New Jersey on appeal and at the preliminary injunction stage in Tennessee, but failed at the preliminary injunction stage in Ohio, where a federal judge ruled sports event contracts are not "swaps" under the Commodity Exchange Act.

Rhode Island's federal case (Kalshi's suit) and state case (AG's suit) will likely proceed on parallel tracks, with the federal judge's decision on CFTC preemption potentially influencing whether the state court action moves forward.

The Broader Tension: State Revenue vs. Federal Markets

Rhode Island's lawsuit crystallizes a tension that has been building since prediction markets expanded aggressively into sports: the collision between federal financial markets regulation and state gambling revenue policy.

States that built their budgets around lottery-controlled sports betting — including Rhode Island — did so because their voters approved gambling under a specific, tightly controlled framework. That framework assumed the state would capture the revenue. Prediction markets, operating under CFTC authority as derivatives exchanges, didn't seek approval from state voters. They don't pay lottery commissions. And they're eating into the handle.

From the platforms' perspective, they are operating exactly as Congress designed — as regulated commodity markets where prices are set by market participants trading event contracts, not as fixed-odds sportsbooks taking action from bettors. The legal question is whether Congress intended CFTC authority to preempt the financial interests of state gambling monopolies when those monopolies are built on constitutional voter mandates.

Rhode Island's case may push that question further than any prior litigation, because the AG isn't just arguing consumer protection or regulatory authority — he's arguing that the state's voters approved a specific gambling framework, and that federal law cannot silently override it.

That is a harder argument to dismiss on preemption grounds. And it's one that courts in the First Circuit will now have to address.

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Frequently Asked Questions

Can I still use Kalshi and Polymarket in Rhode Island? As of May 26, 2026, both platforms remain operational in Rhode Island. The AG's lawsuit seeks a permanent injunction, not an emergency order, so there is no immediate court action blocking access. Legal cases of this type typically take months to years to reach a final decision.

Has Kalshi been blocked in other states? Yes. Nevada obtained a temporary restraining order blocking Kalshi's sports, election, and entertainment event contracts in March 2026. Ohio's federal court denied Kalshi's request for a preliminary injunction, and Ohio's Casino Control Commission issued a $5 million fine notice in April. Kalshi won a preliminary injunction in Tennessee and prevailed on Third Circuit appeal in New Jersey. Outcomes vary significantly by state.

What makes Rhode Island's lawsuit different from other state suits? Rhode Island operates a state-monopoly lottery for sports betting, giving it a direct financial stake that no other state has argued as prominently. The documented 8 percent decline in RILOT betting volume from 2024 to 2025 is the clearest revenue-impact data point any state has put forward in this litigation wave.

What is the CFTC's position? The CFTC under Chairman Michael Selig has actively defended its exclusive jurisdiction, filing preemption lawsuits against Arizona, Connecticut, Illinois, and New York in 2026. The agency has said it "will continue to safeguard its exclusive regulatory authority over these markets and defend market participants against overzealous state regulators." Rhode Island has not yet been the subject of a CFTC preemption suit, but the agency's consistent posture suggests it would likely intervene if state court enforcement advanced toward an injunction that could affect platform operations.

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Sources & Verification

• Rhode Island AG Neronha announces lawsuit against Kalshi and Polymarket, May 21, 2026: Rhode Island Attorney General press release
• $2.8 billion RILOT revenue since 2019; 8% sports betting decline 2024–2025: Rhode Island Attorney General press release
• Dueling lawsuits on May 21; Kalshi filed at 12:03 p.m.; AG filed ~4 p.m.: Rhode Island Current, May 21, 2026
• Kalshi complaint quotes; meeting with AG on May 20: Rhode Island Current, May 21, 2026
• Providence County Superior Court filing; declaratory relief and permanent injunction sought: Providence Journal, May 22, 2026
• AG statements; state's third-largest revenue stream framing: Boston Globe, May 22, 2026
• CFTC sued Arizona, Connecticut, Illinois, April 2, 2026: Reuters, April 2, 2026
• CFTC sued New York, April 24, 2026: Reuters, April 24, 2026
• Federal government sues states over prediction market regulation: AP News, April 2, 2026