CFTC v. Kentucky Round 9: Feds Yee-Haw Back Against State's Prediction Market Tax Rodeo 🐎

The U.S. Commodity Futures Trading Commission filed a federal lawsuit against Kentucky on Tuesday, escalating a multi-state fight over who regulates prediction market platforms Kalshi and Polymarket. The suit seeks declaratory and injunctive relief to block Kentucky from enforcing state laws against federally regulated designated contract markets, and names Governor Andrew Beshear, Attorney General Russell Coleman, and the Kentucky Horse Racing and Gaming Corporation as defendants.

The action comes one week after Kentucky sued Polymarket, Kalshi, and Kalshi partners Coinbase, Robinhood, and Webull, alleging they were "doing business without a Kentucky gaming license or following state regulations" and that their sports event contracts "fall squarely within the definition of 'sports wagering' under Kentucky law." Sports betting has fallen under the Kentucky Horse Racing and Gaming Corporation's jurisdiction since 2023. The state also claimed the platforms offer users "few or no resources" to identify or seek help for a gambling problem as required by state law.

In its filing, the CFTC argued that Kalshi and Polymarket are designated contract markets under its authority and that their event contracts qualify as "swaps" under federal commodities law. Coinbase, Robinhood, and Webull were identified as CFTC-registered futures commission merchants authorized to offer event contracts in partnership with a designated contract market. The regulator also challenged a recently enacted Kentucky law imposing a 14.25% excise tax on prediction market transaction fees, contending the measure is designed to make prediction markets economically unviable within the state. "This tax essentially makes it impossible for prediction markets to operate in Kentucky," the CFTC argued in the complaint.

"Kentucky is the latest state attempting to shut down federally-regulated event contracts," CFTC Chairman Michael S. Selig said in a statement. "Prediction markets like Polymarket and Kalshi can offer valuable information about the likelihood of future events, and they 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." Kentucky is now the ninth state sued by the CFTC over state-level enforcement actions against prediction markets since Selig was appointed chair in December.

The Kentucky complaint follows the CFTC's recent suit against New Mexico to block that state's effort to apply gaming laws to Kalshi. The legal backdrop also includes comments from U.S. President Donald Trump in May, who said it was "critically important" that the CFTC retain authority over prediction markets. Trump's son, Donald Trump Jr., has invested in Polymarket and sits on its advisory board, and is also an adviser to Kalshi.