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UKCFTC Sues Kentucky Over Prediction Market Crackdown
Key Highlights
- The CFTC has filed a lawsuit against Kentucky after the state moved against Kalshi and Polymarket.
- Kentucky’s new prediction market tax would charge operators 14.25% of transaction fees beginning on January 1, 2027.
- The dispute could shape how federal and state regulators handle sports event contracts.
The Commodity Futures Trading Commission (CFTC) on June 23 announced it is filing a lawsuit against Kentucky, marking the latest chapter involving states’ right to jurisdiction over prediction markets. The CFTC now has nine active lawsuits against states over event contracts, and Kentucky is the first with a Republican attorney general.
CFTC Escalates Fight With Kentucky
The CFTC’s latest lawsuit came shortly after Kentucky Attorney General Russell Coleman filed cases against Kalshi and Polymarket, accusing the platforms of violating state gambling laws.
Kentucky joins a growing list of states facing legal action from the CFTC over prediction markets. Since April 2, the regulator has brought nine lawsuits, including actions involving Illinois, New York, and Minnesota. In May, Minnesota became the first state to outright ban prediction markets. The CFTC filed a federal lawsuit hours later in an attempt to block enforcement of the bill.
CFTC Chair Michael Selig said the agency views Kentucky’s actions as another attempt to shut down federally regulated event contracts. He reiterated the commission is committed to defending its exclusive jurisdiction over prediction markets as states question whether those products are legal within their borders.
Kentucky Tax Rule Draws Federal Challenge
The lawsuit also targets a Kentucky excise tax passed in April. The measure, scheduled to take effect on January 1, 2027, would require operators such as Kalshi and Polymarket to pay a 14.25% tax on all transaction fees each month. Kentucky is the first state to introduce a tax specifically aimed at prediction market activity.
Industry groups had already pushed back before the CFTC filed its lawsuit. The Coalition for Fair Markets, which represents companies including Kalshi and Crypto.com, filed its own case against the Kentucky AG’s Office on June 12, arguing that the tax unfairly targets licensed platforms.
Jurisdiction Fight Could Shape Next Stage
Kentucky online casinos are accessible via offshore platforms. The state legalized sports betting, however, in 2023 under the oversight of the Kentucky Horse Racing and Gaming Corporation. But AG Coleman has been a steadfast opponent of prediction markets, arguing that they sit outside that framework. In a June 17 statement, he said calling them “sports event contracts” does not make them legal.
Kentucky’s Kalshi lawsuit also named Robinhood and Coinbase, claiming the companies acted as affiliates by partnering to offer sports event contracts in Kentucky. This expands the dispute beyond prediction market platforms, bringing major financial and crypto-facing companies into the legal fight.
Kalshi and Polymarket have moved to shift the lawsuits from state court to federal court. Kentucky may attempt to send the cases back, which means the next phase could focus heavily on jurisdiction before the legality of sports prediction markets is addressed.