The federal regulator of prediction markets wants to put the kibosh on Kentucky’s attempts to rein in and tax the sports-filled exchanges.
- The CFTC sued Kentucky to block its efforts to shut down and tax federally regulated prediction markets, arguing that federal law takes precedence over state law.
- The lawsuit responds to Kentucky's recent case against Kalshi, Polymarket, and others, which the state claims are operating illegal sports betting platforms.
- The CFTC says Kentucky is trying to drive prediction markets out of the state, while Kentucky argues these companies are violating its gambling laws.
On Tuesday, the Commodity Futures Trading Commission (CFTC) announced it had filed a lawsuit against Kentucky to stop the state's attempts to shutter CFTC-regulated prediction markets.
The lawsuit is a direct response to the lawsuits that Kentucky filed last week against Kalshi, Polymarket, and other prediction market-related entities, which alleged the exchanges are offering illegal sports betting in the commonwealth.
It’s also a brushback pitch for Bluegrass State lawmakers who recently passed legislation that aims to restrict and tax prediction markets.
“Kentucky is the latest state attempting to shut down federally-regulated event contracts,” CFTC Chairman Michael Selig said in a statement. “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.”
The CFTC's lawsuit claims that Kentucky's enforcement efforts, coming on the heels of the proposed prediction market tax, "are just the latest entries in Kentucky’s campaign to banish prediction markets from within their borders."
Can't tax this
And this, the CFTC claims, flies in the face of federal commodities law, which trumps Kentucky sports betting law.
“This comprehensive federal regulatory scheme preempts Kentucky law as applied to event contracts traded on federally regulated exchanges,” the lawsuit states.
It’s a familiar story these days. The CFTC has now sued nine states over their attempts to rein in prediction markets, which is in addition to those state-led lawsuits and the ones that exchange operators have filed themselves.
.@CFTC Sues Kentucky to Prevent Violation of CFTC’s Exclusive Jurisdiction: https://t.co/7XZ57xPil2
— CFTC (@CFTC) June 23, 2026
Indeed, there is a large and growing body of lawsuits involving prediction markets, particularly over their sports-related event contracts that can mimic state-regulated sports betting.
The trading of sports event contracts within its borders was enough to get Kentucky, which launched legal sports betting in 2023, to take legal action.
“Kalshi and Polymarket are operating illegal sportsbooks in Kentucky and breaking our laws,” Kentucky Attorney General Russell Coleman alleged in a press release last week. “These multi-billion dollar corporations and their legal fictions don’t pass the sniff test.”
