CFTC Sues Kentucky Over Prediction Market Crackdown, Making It the Ninth State to Face Federal Legal Action

The Commodity Futures Trading Commission has initiated legal action against Kentucky, suing the state after Attorney General Russell Coleman filed his own lawsuits against prediction market platforms Kalshi and Polymarket. Kentucky is now the ninth state to face federal litigation over its attempts to regulate prediction markets, and the first Republican-led state to be sued by the CFTC in what has become a nationwide jurisdictional battle over who controls the fast-growing prediction market industry.

CFTC Chair Michael Selig said in a statement that Kentucky is “the latest state trying to shut down federally-regulated event contracts” and reiterated the agency’s commitment to “upholding its exclusive authority over prediction markets.” The federal regulator argues that prediction market platforms like Kalshi and Polymarket operate under the Commodity Exchange Act, which grants the CFTC exclusive jurisdiction over federally regulated event contracts — authority that states cannot override through their own gambling laws.

What Triggered the Kentucky Action

The chain of events began when Kentucky’s AG filed three separate lawsuits in Franklin Circuit Court in June, targeting Kalshi, Polymarket, and VGW Holdings. The Kalshi lawsuit named several co-defendants including Coinbase Financial Markets, Robinhood, and Webull — all platforms that distribute Kalshi’s prediction market contracts to retail users. Coleman argued that the platforms are “operating illegal sportsbooks in Kentucky and breaking our laws” and that their sports-related event contracts constitute wagering under the state’s sports betting regulations.

Kentucky also passed House Bill 757 earlier this year, which imposes a 14.25% excise tax on prediction market transactions. That law takes effect July 15. The Coalition for Fair Markets, which represents prediction market operators, filed its own lawsuit in June challenging the tax as unconstitutional, arguing it discriminates against prediction markets relative to horse racing wagers, which face a lower 9.75% tax rate. The CFTC’s lawsuit against Kentucky now encompasses both the AG’s enforcement actions and the new transaction tax, arguing both represent unconstitutional state encroachment on federal authority.

A National Pattern Intensifying

Twenty states are now engaged in some form of legal dispute with prediction market platforms. The CFTC has been the primary federal counterforce, filing suits in nine states and seeking to block enforcement actions and new laws that would effectively ban or tax prediction market operations within those borders. The legal battles have created significant uncertainty for prediction market operators and bettors alike. Platforms like Kalshi and Polymarket remain available in Kentucky for now, though that status could change depending on how the courts rule as the July 15 law implementation date approaches.

For sports bettors and DFS players trying to navigate what is legal and available in their state, the regulatory confusion highlights the importance of checking state-specific availability before signing up for any platform. Kentucky sportsbooks are available through the state’s licensed horse racing associations, and regulated sports wagering remains active through operators including DraftKings, FanDuel, and BetMGM. Prediction markets exist in a separate, contested legal category that may soon be resolved by federal courts.

Kalshi has taken an aggressive legal posture in response to state actions, filing federal lawsuits in Illinois, Nevada, and Massachusetts in addition to challenging the Kentucky framework. The company argues that only the CFTC can regulate its products, and courts in several jurisdictions are now weighing that question. The outcome of the Kentucky dispute — given that it is the first to pit the CFTC against a Republican AG — could have significant implications for how the broader national legal landscape develops over the coming months. For bettors interested in participating in prediction markets, both the DraftKings promo code and available sportsbook options remain fully operational in Kentucky under the state’s regulated framework.