CFTC Sues Kentucky Over Control of Prediction Markets

The Commodity Futures Trading Commission sued the Commonwealth of Kentucky on Tuesday in the U.S. District Court for the Eastern District of Kentucky, asserting exclusive federal jurisdiction over prediction markets. The filing responds to Kentucky’s recent lawsuits against platforms including Kalshi and Polymarket, which the state accuses of operating unlicensed sports betting and gambling in Kentucky.

The CFTC’s complaint argues the state is overreaching and points to a Kentucky law that requires prediction markets to pay a 14.25% tax on transaction fees, a provision the filing says “essentially makes it impossible for prediction markets to operate in Kentucky.” The complaint adds that “Kentucky’s attempts to shut down federally regulated DCMs intrude on the exclusive federal scheme Congress designed to oversee national swaps markets.”

Kentucky is the ninth state the CFTC has sued in the past year. The agency has filed similar complaints against Wisconsin, Illinois, Arizona, Connecticut, New York, New Mexico, Minnesota and Rhode Island, asserting that federal derivatives and swaps rules cover many prediction-market contracts and preempt state gaming laws.

State officials have argued that some prediction platforms violate local gambling statutes when they allow bets tied to sporting events. Those officials have pursued enforcement actions and state-level legislation aimed at blocking or taxing the platforms.

Platforms such as Kalshi and Polymarket expanded after the 2024 election, offering wagers on political outcomes, sports events including the World Cup, and other future events. The growth has prompted debate among regulators and lawmakers about consumer protections, market integrity and which authorities should regulate these markets.

CFTC Chair Michael Selig, who took office late last year, has advanced a proposal for a federal regulatory framework. The agency’s rule proposal would generally allow sports betting on regulated prediction platforms while banning trading tied to terrorism and assassinations.

The dispute will proceed in federal court, where judges will decide whether federal derivatives law or state gaming statutes apply. Court rulings will determine how platforms operate in affected states, the taxes they face and which regulators set market rules and consumer protections.