CFTC sues Kentucky: battle for federal control over prediction markets
The U.S. Commodity Futures Trading Commission (CFTC) has officially filed a lawsuit against the state of Kentucky. The reason is the actions of local authorities, which, according to the regulator, are attempting to stifle legitimate federal prediction markets through exorbitant fines and the imposition of additional taxes.
The conflict had been brewing for a long time and entered an open phase back in early June. Kentucky Attorney General Russell Coleman filed lawsuits against industry giants such as Kalshi, Polymarket, and VGW, accusing them of organizing illegal online betting without proper licenses within the state. This was just the first blow.
Authorities then went further and passed a law that, effective January 1, 2027, introduces an excise tax of 14.25% on operators of prediction markets. The tax will be calculated based on the platform's commission fees. The CFTC claims that such measures are nothing less than a direct attempt to push federally regulated platforms out of the state by creating unbearable working conditions for them.
Federal Preemption: The CFTC's Position
CFTC Chairman Michael S. Selig called this lawsuit part of a principled fight to preserve the agency's exclusive jurisdiction. He emphasized that Kentucky is just the latest state trying to shut down event prediction contracts that are under the control of the federal regulator. The Commission intends to vigorously defend its position in court.
Kentucky was not the first and, obviously, will not be the last. The CFTC has already initiated similar legal proceedings against Minnesota, Illinois, Rhode Island, and other states. The outcome of these disputes is of enormous significance for the entire industry.
My analysis: This lawsuit is a classic example of a power struggle between the federal center and the states. If the CFTC loses, we will witness a fragmentation of the market, where each state sets its own rules. This would create enormous operational risks for platforms and undermine the very idea of a single regulated prediction market in the U.S. Watch this case closely—it could become a precedent-setting one.