The Commodity Futures Trading Commission (CFTC) filed a lawsuit against Kentucky on Tuesday in response to the state’s attorney general’s attempt to outlaw prediction markets.
The complaint requests a permanent injunction and relief after Kentucky officials sued prediction operators Kalshi and Polymarket to block sports event contract offers. Gov. Andrew Beshear (R), AG Russell Coleman, and the Kentucky Horse Racing and Gaming Corporation were named in the lawsuit.
Taking action against Kentucky
The 29-page lawsuit was submitted to the U.S. District Court for the Eastern District of Kentucky.
Kentucky is one of several states that recently escalated the fight against the CFTC and prediction operators. It started with officials approving an excise tax on prediction market transaction fees, as well as a prohibition of sports event contracts, at Kalshi, Polymarket, and affiliate companies.
The state’s action prompted a coalition of prediction market operators to file a lawsuit against Kentucky and eventually led to the CFTC’s involvement.
“Prediction markets provide Kentuckians with valuable information about the likelihood of future events and offer risk management products relied on by Kentucky businesses and individuals,” CFTC chairman Michael Selig said in a press release. “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.”
If the CFTC has its way, the court will rule that Kentucky’s state mandate violates the U.S. Constitution’s Supremacy Clause, which states that federal law preempts state law.
The CFTC also hopes to procure a permanent injunction, which would prohibit Kentucky from enforcing its regulations on federally-regulated Designated Contract Markets (DCMs).
Sports event contracts cause debate
Sports event contracts have proven to be harshly divisive in America. Prediction operators argue that they are in line with the CFTC’s guidelines, while state officials have tagged them as a form of unlicensed gambling.
The new lawsuit reinforced the notion that the CFTC holds the final say over prediction markets, no matter how controversial they are.
“Event contracts, including sports-related event contracts that are listed on DCMs, are covered by the [Commodity Exchange Act], and the CEA prohibits States from invading the CFTC’s exclusive jurisdiction over event contract transactions offered by and executed on federally regulated DCM,” CFTC counsel wrote in the lawsuit. “By prohibiting these DCMs from operating in Kentucky without a Kentucky license or by conditioning their operation on compliance with preempted Kentucky laws and regulations, Defendants directly interfere with Plaintiffs’ authority pursuant to the federal scheme imposed by Congress through the CEA.”
The CFTC lashes out at states
The CFTC’s involvement in Kentucky adds to a growing campaign against state officials who have attempted to impede the growth of, or add additional regulation to, prediction markets. The federal body, strongly supported by President Donald Trump, began by only attacking states with Democratic Attorneys General. However, it deviated from that court with its recent action, including the lawsuit against Kentucky.
Other states that have faced litigation from the CFTC include Arizona, Connecticut, Illinois, New Mexico, New York, Minnesota, Rhode Island, and Wisconsin. The first lawsuit was only filed about two-and-a-half months ago in early April.
The Trade Handle Prediction Markets Take
Having Trump’s support has emboldened the CFTC, which is right to highlight the Supremacy Clause. The challenge that states are facing — and have gone about differently — is having a presence in prediction markets, without overstepping their limits. The CFTC’s decreasing patience with states also adds even more credence to the prediction market battle eventually rising to the Supreme Court, although it’s unclear when that may be.