The Commodity Futures Trading Commission sued Kentucky in federal court, seeking to stop the state from enforcing gaming rules against federally regulated market operators.
Summary
- Kentucky became the ninth state to face CFTC action over market speculation and sports contracts.
- The regulator says event contracts are exchanged under federal law, not state-regulated gambling products in the area.
- Kentucky’s 14.25% tax adds a new dimension to the broader fight for market capitalization across the country.
The lawsuit names Kentucky Governor Andrew Beshear, Attorney General Russell Coleman, Treasury Commissioner Thomas B. Miller, and the Kentucky Horse Racing and Gaming Corporation as defendants.
The CFTC says Kentucky’s actions conflict with the Commodity Exchange Act, which gives the regulator authority over futures, options, and exchanges traded on federally regulated exchanges.
“Kentucky is the latest state to try to ban state-regulated event contracts,” said CFTC Chairman Michael Selig.
The agency asked the court to grant a declaration and a preliminary injunction. Kentucky says sports-related contracts require state oversight.
State action targeted the fields
Kentucky sued Kalshi, Polymarket, and affiliates Coinbase, Robinhood, and Webull on June 17. The state said the companies offered contracts for sporting events without a Kentucky gaming license and without following state laws. It also pointed out that the products fall under the federal definition of sports betting.
The CFTC rejected that idea in its appeal. It said that Kalshi and Polymarket are designated contract markets under the supervision of the government. It also said Coinbase, Robinhood, and Webull are registered futures commission merchants that can offer event contracts in partnership with regulated exchanges.
In addition, the regulator defined the target contracts as exchanges under the government goods law. Kentucky also accused the platforms of offering few or no services to users who might need gambling help.
The tax dispute adds another dimension
The lawsuit also challenges Kentucky’s new 14.25% tax on predictable transaction fees and contract value. The CFTC said the tax applies to contracts that trade in Kentucky or Kentucky residents.
“This tax essentially makes it impossible for prediction markets to operate in Kentucky.” the agency said in the complaint.
In a recent update, crypto.news covered Kentucky’s previous battle with prediction market firms over that tax. A consortium that included Kalshi, Crypto.com, and Polymarket sued the state, saying the tax targeted federally regulated markets and treated betting platforms differently from other gaming businesses. That tax case remains separate from Kentucky’s gambling appeals. The new CFTC case now puts both federal enforcement and federal taxation before federal courts.
An extensive court battle continues
Kentucky is now the ninth state in the CFTC’s prediction market fight. As crypto.news reported, New Mexico became the eighth state earlier this month after the CFTC sued to block the state’s gaming laws from accessing Kalshi’s sports contracts. Rhode Island, Wisconsin, Minnesota, New York, Arizona, Connecticut, and Illinois have also joined the regulatory push.
The dispute centers on whether contracts for sports-related events fall under federal derivatives law or state gambling law. States argue that the products look like sports betting and require local licenses, consumer inspections, and gambling protections. Prediction market firms and the CFTC say regulated exchanges are already under the federal system.
President Donald Trump has backed the CFTC’s regulation of the futures markets, calling the issue “very important.” His son, Donald Trump Jr., invested in Polymarket and advised Kalshi.
The sector continued to attract large firms even as court disputes escalated. Earlier, crypto.news examined the reported activity of Meta in Arena, a market app for prediction based on points. That report followed growing interest from firms such as Charles Schwab, Cboe, Kalshi, and Polymarket.
