CFTC Sues Kentucky After State Targets Kalshi and Polymarket, Marking First Republican State to Face Federal Prediction Market Enforcement

The Commodity Futures Trading Commission announced this week it is initiating legal action against the state of Kentucky, making the state the ninth target of the federal regulator’s ongoing effort to assert exclusive authority over prediction markets. The lawsuit follows Kentucky Attorney General Russell Coleman’s own lawsuits against prediction market platforms Kalshi and Polymarket, which he accused of operating illegal sportsbooks in the state without proper licensing.

Kentucky is significant in the CFTC’s campaign because it marks the first Republican-led state the agency has sued. Previous federal actions were concentrated in blue and purple states. CFTC Chair Michael Selig stated in a press release that “Kentucky is the latest state trying to shut down federally-regulated event contracts,” adding that the agency is “dedicated to upholding its exclusive authority over prediction markets.” The commission has now initiated legal proceedings against nine states in total as the jurisdictional war between federal and state gambling regulators continues to escalate.

What Kentucky Did First

The sequence of events is notable. Kentucky Attorney General Coleman filed three separate lawsuits in Franklin Circuit Court in mid-June — one targeting Kalshi and its affiliates, including Coinbase, Robinhood, and Webull; one targeting Polymarket; and a third aimed at VGW Holdings, the company behind sweepstakes casino brands Chumba Casino, LuckyLand Slots, and Global Poker. Coleman argued that Kalshi and Polymarket were “operating illegal sportsbooks in Kentucky and breaking our laws” and that the prediction markets’ sports-related event contracts constituted gambling that required state licensing under Kentucky’s sports wagering framework.

Kentucky’s state legislature had also passed a law earlier this year that imposes a 14.25% excise tax on prediction market transactions and takes effect July 15. The Coalition for Fair Markets sued to block that tax, calling it unconstitutional. The CFTC’s new lawsuit argues that Kentucky’s actions — both the AG’s litigation and the new tax framework — encroach on the federal agency’s exclusive jurisdiction over event contracts traded on CFTC-regulated exchanges. Under the Commodity Exchange Act, the CFTC maintains that only the federal government can regulate prediction markets. For bettors who want to understand how prediction markets differ from sportsbooks, see our guide on prediction markets vs. sports betting.

The Broader Battle: 20 States Now Involved

Kentucky’s lawsuit against VGW adds a sweepstakes casino dimension that most prior prediction market disputes have not included. The AG argues that VGW’s dual-currency sweepstakes model — where players purchase virtual tokens that can eventually be redeemed for cash — constitutes illegal gambling under Kentucky law. VGW rejected the claims and said it plans to vigorously defend the lawsuit.

Across the country, 20 states are now involved in some form of legal dispute with prediction market platforms. States broadly contend that sports-related event contracts function like sports wagers and fall under state jurisdiction. The CFTC maintains the contracts are federally regulated derivatives. The dueling legal frameworks have created widespread uncertainty for prediction market operators. You can check the latest available options using our Kalshi promo code or Polymarket promo code pages for current welcome offers on both platforms.

Kalshi, for its part, has taken an aggressive litigation posture of its own, filing federal lawsuits against Illinois, Nevada, and Massachusetts in separate actions claiming that only the CFTC can regulate its markets. The prediction market space has become one of the most contentious legal battlegrounds in American gambling regulation, with federal and state authorities on a collision course that may ultimately require a Congressional resolution to settle definitively.