Kentucky becomes latest state sued by CFTC over prediction markets

Kentucky has become the latest battleground in the fight over prediction markets after the Commodity Futures Trading Commission sued the state as part of its push to establish federal oversight of the industry.

On Tuesday, the derivatives regulator sued the state over what it says it has "exclusive jurisdiction" over, after the state originally sued Kalshi, Polymarket and others last week for allegedly operating unlicensed, illegal sports betting and gambling platforms in the state. 

"Kentucky’s attempts to shut down federally regulated DCMs [designated contract markets] intrude on the exclusive federal scheme Congress designed to oversee national swaps markets," the CFTC said in the complaint filed in the U.S. District Court for the Eastern District of Kentucky. 

Kentucky is now the ninth state to be sued by the CFTC.

Over the past year, the agency has also brought complaints against Wisconsin, Illinois, Arizona, Connecticut, New York, New Mexico, Minnesota and Rhode Island. The main crux of those filings has been that the CFTC has "exclusive jurisdiction" over prediction markets and that states are overreaching. However, states have pushed back, saying that the platforms are violating local gaming and gambling laws, particularly related to sports-related bets.

Prediction platforms like Kalshi and Polymarket have surged in popularity following the 2024 election cycle, where people can make bets on things like political elections and which team will win the World Cup. 

CFTC Chair Michael Selig, who took office late last year and has expressed support for prediction markets, has launched an effort to establish a regulatory framework for the industry.

Under his leadership, the CFTC debuted a sweeping rule proposal that would generally allow sports betting on prediction markets, while setting limits on bets on terrorism and assassinations. 

In the complaint against Kentucky, the CFTC criticized a bill passed by its legislature that requires prediction markets to pay a tax of 14.25% on transaction fees. The CFTC says it "essentially makes it impossible for prediction markets to operate in Kentucky."