Trump Administration Backs Kalshi, Polymarket With Lawsuit Against Kentucky

Kentucky is the ninth state to be sued by the Commodity Futures Trading Commission in its escalating fight over sports-event contracts, Front Office Sports has learned, a move that follows last week’s lawsuits by Kentucky’s attorney general against Kalshi and Polymarket.

The suit is expected to be filed Tuesday, according to a source familiar with the matter. It continues the CFTC’s recent pattern of suing states that have themselves taken action against prediction-market platforms. Most recently, the federal regulator took aim at New Mexico on June 12. It has previously sued Illinois, Arizona, Connecticut, New York, Rhode Island, Wisconsin, and Minnesota. 

All nine suits have been brought since April 2. CFTC chairman Michael Selig told FOS in April that he felt compelled to support federally registered prediction-market platforms, but would abide by a potential U.S. Supreme Court decision on sports event contracts, something that is widely expected as soon as next year. “We will always follow the law,” Selig said. “We will always look to the courts.”

The CFTC’s lawsuit comes less than a week after Kentucky AG Russell Coleman launched separate lawsuits against Kalshi and Polymarket in state court, alleging they are flouting state gambling laws. Traditional sports betting has been legal in Kentucky since 2023, and is overseen by the Kentucky Horse Racing and Gaming Corporation. “Simply calling them ‘sports event contracts’ doesn’t make them legal,” the AG said in a June 17 statement. The suit against Kalshi also named as defendants Robinhood and Coinbase, claiming those are considered “affiliates” of the company because they have partnered to offer sports event contracts in Kentucky. 

Jurisdictional jockeying has already begun there. Kalshi and Polymarket have each removed the suits filed against them by Kentucky from state to federal court, because they believe federal court will be a more favorable venue. Kentucky may remand the suits back to federal court. The fight over where the suits should play out does not have to do with the merits of the cases, but instead which court gets to decide them.

“These enforcement actions are just the latest entries in Kentucky’s campaign to banish prediction markets from within their borders,” the CFTC said in its complaint.

The CFTC’s lawsuit also takes aim at a novel excise tax on prediction-market transactions that Kentucky enacted in April. That tax, which goes into effect Jan. 1, 2027, will be imposed on prediction-market operators like Kalshi and Polymarket. Under the law, prediction-market companies will be required to pay the state 14.25% of all transaction fees on a monthly basis. It represents the first such tax on prediction markets in the country. 

The Coalition for Fair Markets, a trade group that advocates for companies like Kalshi and Crypto.com, challenged that tax in a state court lawsuit filed against the Kentucky AG on June 12.

The CFTC’s new lawsuit bucks the trend of suits only coming against states with both Democratic governors and attorneys general, something critics had recently pointed out; Kentucky’s governor, Andy Beshear, is a Democrat, but AG Coleman is a Republican.

The suit names as defendants the Commonwealth of Kentucky, governor Beshear, AG Coleman, Kentucky Department of Revenue commissioner Thomas Miller, and the Kentucky Racing and Gaming Corporation. The one-count complaint claims Kentucky’s laws aimed at curbing prediction-market offerings in the state violate the U.S. Constitution. It requests a judgment confirming that violation and a ruling barring the state from enforcing its allegedly illegal laws. It also requests costs and fees, as well as any other relief deemed just by the court.