Kentucky Just Got Sued by the CFTC — Here’s the Prediction Market Battle Behind It

TLDR

• The CFTC has sued Kentucky, making it the ninth state the regulator has taken to court over prediction markets.
• Kentucky first sued Kalshi, Polymarket, Coinbase, Robinhood, and Webull last week for running unlicensed gambling platforms.
• The CFTC says it has exclusive federal jurisdiction over prediction markets and that Kentucky is overstepping.
• Kentucky passed a 14.25% excise tax on prediction market transaction fees, which the CFTC says makes it impossible for these platforms to operate in the state.
• CFTC Chair Mike Selig has been pushing to establish a federal regulatory framework for prediction markets since taking office in December.

The Commodity Futures Trading Commission has sued the state of Kentucky in federal court, seeking to block the state from enforcing its own laws against prediction market platforms.

The lawsuit was filed in the U.S. District Court for the Eastern District of Kentucky on Tuesday. It names Kentucky Governor Andrew Beshear, Attorney General Russell Coleman, and the Kentucky Horse Racing and Gaming Corporation as defendants.

Kentucky had filed its own lawsuit the week before, targeting prediction market platforms Kalshi and Polymarket, along with their partners Coinbase, Robinhood, and Webull. The state alleged these companies were operating without a Kentucky gaming license.

Kentucky also claimed the platforms offered users “few or no resources” to identify or get help with a gambling problem, which is required under state law.

CFTC Claims Exclusive Federal Authority

The CFTC pushed back hard. It argued that Kalshi and Polymarket are designated contract markets operating under federal law. Their event contracts are classified as “swaps” under federal commodities law, the agency said.

The regulator also argued that Coinbase, Robinhood, and Webull are registered futures commission merchants that are legally allowed to partner with these platforms.

The CFTC specifically called out a Kentucky law that imposes a 14.25% excise tax on prediction market transaction fees. The agency said the tax “essentially makes it impossible for prediction markets to operate in Kentucky.”

Sports betting has been under the jurisdiction of the Kentucky Horse Racing and Gaming Corporation since 2023, which is the basis for the state’s argument.

A Growing List of State Battles

Kentucky is now the ninth state to be sued by the CFTC. Previous suits were filed against Wisconsin, Illinois, Arizona, Connecticut, New York, New Mexico, Minnesota, and Rhode Island.

The CFTC’s central argument in all these cases is the same: federal law governs prediction markets, and state laws cannot override that.

Just weeks ago, the CFTC filed a similar suit against New Mexico after that state tried to apply its own gaming laws to Kalshi.

In May, President Donald Trump called it “critically important” that the CFTC maintain its authority over prediction markets.

Trump’s son, Donald Trump Jr., has invested in Polymarket and sits on advisory boards for both Polymarket and Kalshi.

CFTC Chair Selig has been building a regulatory framework for the industry since taking office in December. Under his leadership, the CFTC proposed rules that would broadly allow sports betting on prediction markets, with limits placed on bets tied to terrorism or assassinations.

Platforms like Kalshi and Polymarket grew rapidly during the 2024 election cycle and now allow users to bet on events ranging from political elections to sports championships.

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