Baltimore Sues Kalshi and Polymarket for Unlicensed Sports Betting

Baltimore Mayor Brandon Scott and the Baltimore City Council filed lawsuits Wednesday against prediction market platforms Kalshi and Polymarket, alleging both operate illegal sports betting services without proper state licensing. The legal action also names major retail brokers Coinbase, Robinhood, and Webull as defendants, escalating regulatory pressure on an industry that has long occupied a gray zone between derivatives trading and gambling law.

The suits, filed August 13, 2026, center on whether prediction markets that allow users to wager on sporting event outcomes constitute sports betting under Maryland law, which requires explicit licensing for such activity. Baltimore's position is straightforward: if it looks like a bet and pays like a bet, a state gambling license is required. Neither Kalshi nor Polymarket holds one in Maryland.

The inclusion of Coinbase, Robinhood, and Webull represents the lawsuit's most significant structural move. All three platforms have integrated prediction market products or access into their retail offerings in recent months, giving millions of users a direct on-ramp to sports-related contracts. By naming the brokers, Baltimore attempts to close the distribution layer, not just the underlying markets. The legal theory appears to be that facilitating access to an unlicensed gambling operation carries its own liability, regardless of whether the broker itself operates the market.

Kalshi and Polymarket have consistently argued that their products are regulated derivatives contracts under the Commodity Exchange Act (CEA), supervised at the federal level by the Commodity Futures Trading Commission (CFTC), and therefore not subject to state gambling statutes. Kalshi, which received CFTC approval in 2023 to list event contracts, has made federal preemption central to its legal strategy in prior disputes. Polymarket similarly positions its markets as legitimate price-discovery tools rather than gambling vehicles. The brokers are likely to argue they are merely providing access to federally sanctioned instruments, not operating unlicensed betting shops.

That federal-versus-state tension is precisely what makes this lawsuit consequential beyond Baltimore's city limits. State attorneys general and municipal governments have grown increasingly willing to challenge crypto-adjacent platforms on consumer protection and licensing grounds, a trend that mirrors broader state-level assertiveness in financial regulation. A ruling in Baltimore's favor could hand other jurisdictions a legal template to pursue their own enforcement actions, potentially fragmenting the national market for prediction products into a patchwork of state licensing regimes. A ruling for the platforms would reinforce the federal preemption argument and likely accelerate prediction markets' mainstream expansion.

The CFTC's own posture toward prediction markets has been inconsistent. The agency scrutinized Polymarket's earlier U.S. operations and reached a settlement in 2022, but has since allowed a more permissive environment to develop. Congress has not passed comprehensive legislation clarifying whether event contracts tied to sports outcomes fall under federal derivatives authority or state gambling law, leaving courts to resolve the ambiguity case by case.

For Coinbase and Robinhood specifically, the lawsuit introduces compliance risk at a sensitive moment. Both companies have spent considerable effort building regulatory credibility with federal agencies, and being named in a state gambling enforcement action complicates that positioning. Webull, which has expanded aggressively into derivatives-adjacent products, faces similar reputational exposure.

The prediction market industry has grown rapidly over the past two years, with Kalshi reporting tens of millions in monthly notional volume across its event contracts and Polymarket drawing global attention during the 2024 and 2026 election cycles. That visibility has made them targets. State regulators who might have overlooked niche derivatives platforms are now watching products that ordinary retail investors use to bet on NFL games alongside commodity prices.

Baltimore's suits will almost certainly be met with motions to dismiss on preemption grounds. How quickly a Maryland court rules on that threshold question will determine whether this action becomes a prolonged multi-year legal fight or a swift precedent-setter. Either way, the prediction market industry now has its first major municipal lawsuit on record, and other cities are watching.