The U.S. Commodity Futures Trading Commission (CFTC) escalated its jurisdictional battle over prediction markets by suing the state of Kentucky on Tuesday. The regulator filed a complaint in the U.S. District Court for the Eastern District of Kentucky, arguing that it holds "exclusive jurisdiction" over platforms like Kalshi and Polymarket under the Commodity Exchange Act.
The move is a direct response to Kentucky’s lawsuit filed last week against those same platforms, which the state accused of operating unlicensed sports betting and gambling services. In its filing, the CFTC asserted that "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."
Kentucky is now the ninth state to face CFTC litigation in a coordinated push to establish uniform federal oversight. Over the past year, the agency has also sued Wisconsin, Illinois, Arizona, Connecticut, New York, New Mexico, Minnesota, and Rhode Island. At the heart of the dispute is whether prediction markets—where users bet on outcomes like elections and sporting events—fall under federal commodities law or state gambling regulations.
CFTC Chair Michael Selig, who took office late last year and has publicly supported prediction markets, has launched an effort to build a regulatory framework for the sector. Under his leadership, the CFTC recently proposed a sweeping rule that would generally permit sports betting on prediction markets while prohibiting bets on terrorism and assassinations. The complaint also criticizes a Kentucky law that imposes a 14.25% tax on transaction fees, claiming it "essentially makes it impossible for prediction markets to operate in Kentucky."
The legal outcome could set a major precedent: a federal win may legitimize prediction markets nationwide, while a state victory could encourage a patchwork of conflicting rules. Industry stakeholders and traders are watching closely, as the decision will affect platform accessibility, compliance burdens, and the broader regulatory landscape for event-based trading.
