CFTC Sues Kentucky, Making It the Ninth State in Prediction-Market Jurisdiction Fight

The Commodity Futures Trading Commission filed suit against Kentucky on Tuesday, bringing the total number of states facing federal litigation over prediction-market jurisdiction to nine.

The CFTC's complaint seeks declaratory and injunctive relief to block Kentucky from enforcing state gaming statutes against CFTC-registered exchanges. The suit names Kentucky Governor Andrew Beshear, Attorney General Russell Coleman, and the Kentucky Horse Racing and Gaming Corporation.

"Kentucky is the latest state attempting to shut down federally-regulated event contracts," CFTC Chair Michael S. Selig said in the press release. "Prediction markets provide Kentuckians with valuable information about the likelihood of future events and offer risk management products relied on by Kentucky businesses and individuals.”

“As I've consistently pledged, the CFTC is firmly committed to maintaining its exclusive jurisdiction over prediction markets, and today's lawsuit against Kentucky is yet another example of the Commission protecting its federal interests," Selig said.

Kentucky's Move First

Kentucky's state-court filing last week named five platforms: Kalshi, Polymarket, and three CFTC-registered futures commission merchants that partner with them: Coinbase, Robinhood, and Webull. The state alleged they were operating without a Kentucky gaming license and that their sports-event contracts fall squarely within Kentucky's definition of sports wagering. Sports betting in Kentucky has been regulated by the Horse Racing and Gaming Corporation since 2023. The state also alleged the platforms provide users few or no resources to identify or seek help for a gambling problem, as required by state law.

Beyond the lawsuit, Kentucky passed a 14.25% excise tax on prediction-market transaction fees. The CFTC, in its federal complaint, argued that tax is structured to make operation in the state economically impossible.

Federal Preemption Argument

The CFTC's position rests on the Commodity Exchange Act, which the agency argues grants it exclusive authority over event contracts. In its complaint, the regulator argued that Kalshi and Polymarket hold status as designated contract markets under federal law, and that their event contracts qualify as swaps under the CEA. Coinbase, Robinhood, and Webull, it added, are CFTC-registered futures commission merchants operating within that same federal framework. Kentucky's attempt to apply state gaming laws, the CFTC argued, obstructs Congress's decision to preempt state regulation in this area.

Nine States, One Pattern

The Kentucky suit extends a campaign the CFTC opened in early April, when it filed simultaneous actions against Arizona, Connecticut, and Illinois. The agency subsequently added New York, Minnesota, Rhode Island, and Wisconsin. The Defiant covered the Wisconsin filing when it extended the arc in late April. New Mexico became the eighth state on June 12 after its attorney general sued Kalshi in state court, alleging the exchange ran an unlicensed sportsbook.

The federal-state standoff has parallel tracks in Washington. Gaming industry groups, tribal coalitions, and hospitality unions have pressed senators to insert a sports-betting carve-out into the CLARITY Act, the crypto market-structure bill.

Former CFTC and SEC Chair Gary Gensler filed an amicus brief at the Sixth Circuit in June arguing sports-event prediction markets are not swaps under Dodd-Frank, directly contradicting the CFTC's own legal stance. A tribal coalition also filed amicus briefs in two federal cases, arguing CFTC preemption would strip tribes of authority to regulate prediction markets on Native land.

With nine states now in active federal litigation and parallel appellate briefings from industry, tribal, and former-regulator parties, the question of whether Kalshi and Polymarket operate under one national framework or face a state-by-state patchwork is moving toward the appellate courts without a clear endpoint.