CFTC Sues Kentucky After State Targets Kalshi and Polymarket Sports Event Contracts

Meta description: Kentucky sued Kalshi and Polymarket on June 17, then the CFTC sued Kentucky on June 23 over event-contract jurisdiction.

Tags: Kalshi, Polymarket, CFTC, Kentucky, Russell Coleman, Michael Selig

Market platform: none-if-cross-platform

Category: Regulation

Kentucky Attorney General Russell Coleman sued Kalshi and Polymarket on June 17, alleging the prediction-market platforms are offering unlicensed sports wagering in the state. Six days later, the Commodity Futures Trading Commission sued Kentucky in federal court, turning the state enforcement action into a direct federal-state fight over who controls sports event contracts.

The Kentucky cases were filed in Franklin Circuit Court and also included a separate lawsuit against VGW, according to Coleman’s public announcement reported by Kentucky Public Radio and Spectrum News 1. The CFTC’s June 23 case, USA and Commodity Futures Trading Commission v. Commonwealth of Kentucky et al., No. 3:26-cv-00049, was filed in the U.S. District Court for the Eastern District of Kentucky, according to the federal docket summarized by Justia.

What did Kentucky allege against Kalshi and Polymarket?

Kentucky’s lawsuits allege that Kalshi and Polymarket are operating illegal sports-betting products without Kentucky licenses. Coleman’s office framed the platforms’ sports event contracts as wagers on game outcomes, spreads, player statistics and similar sports propositions, rather than federally protected derivatives trading.

The complaints focus on Kentucky gambling and consumer-protection law. Kentucky Public Radio reported that Coleman accused the companies of allowing users to buy and sell yes-or-no event contracts on real-world outcomes while bypassing the state’s sports-wagering regime. Spectrum News 1 reported that the suits targeted Kalshi, Polymarket, Coinbase and VGW over alleged illegal gambling activity, with the prediction-market claims centered on sports products offered to Kentucky users.

The litigation followed a separate tax fight. The Kentucky Lantern reported that a coalition tied to prediction-market companies had sued Kentucky less than a week earlier over a new 14.25% tax on prediction-market transactions. The CFTC’s June 23 press release also pointed to Kentucky’s new special transaction fee on CFTC-regulated designated contract markets as part of the conduct the agency says interferes with federal law.

Kalshi and Polymarket are not in the same regulatory posture. Kalshi operates as a CFTC-regulated designated contract market, which gives it a direct federal-registration argument against state gambling enforcement. Polymarket’s U.S. structure has been litigated separately through QCX LLC, doing business as Polymarket US, including in Michigan. Kentucky’s lawsuits, however, treat the consumer-facing sports product as the central issue.

Why did the CFTC sue Kentucky?

The CFTC sued Kentucky on June 23 to block what it described as state interference with CFTC-registered contract markets. In Release No. 9260-26, the agency said Kentucky’s civil enforcement actions and transaction fee obstruct Congress’ decision to federally preempt state law in CFTC-regulated markets.

The federal docket names the United States and the CFTC as plaintiffs and the Commonwealth of Kentucky, Gov. Andy Beshear, Attorney General Russell Coleman, Thomas B. Miller and the Kentucky Horse Racing and Gaming Corporation as defendants. The case was filed as a declaratory judgment action under 28 U.S.C. § 2201 and assigned to U.S. District Judge S. Chad Meredith, according to Justia’s docket summary for No. 3:26-cv-00049.

CFTC Chairman Michael S. Selig used the Kentucky filing to restate the agency’s broader position. In the June 23 CFTC release, Selig said Kentucky was the latest state attempting to shut down federally regulated event contracts and said the agency was committed to maintaining its jurisdiction over prediction markets.

The CFTC also said it had initiated legal proceedings against Minnesota, Illinois and Rhode Island, and had filed amicus briefs in the Sixth Circuit, Ninth Circuit and Massachusetts Supreme Judicial Court. That makes Kentucky part of a broader agency strategy, not a one-off response to Coleman’s June 17 lawsuits.

How have courts treated sports event contracts?

The court record is split, and the rulings are mostly preliminary. Kalshi has won important early rulings in Tennessee and New Jersey, while Polymarket and Robinhood lost preliminary-injunction bids in Michigan. Those decisions do not finally resolve the legality of sports event contracts nationwide, but they are shaping the leverage of states, exchanges and the CFTC.

In Tennessee, U.S. District Judge Aleta A. Trauger granted Kalshi a preliminary injunction on February 19 in KalshiEX LLC v. Orgel, No. 3:26-cv-00034. The order, published by Justia as Document 48, found that Kalshi was likely to succeed because its sports event contracts are “swaps” under the Commodity Exchange Act and because conflict preemption likely applied against Tennessee enforcement.

In New Jersey, the U.S. Court of Appeals for the Third Circuit affirmed a preliminary injunction for Kalshi on April 6 in KalshiEX LLC v. Flaherty, No. 25-1922. The 2-1 opinion, also available through Justia, held that Kalshi’s sports-related event contracts are swaps traded on a CFTC-licensed designated contract market and that both field and conflict preemption applied to New Jersey’s attempted enforcement at the preliminary-injunction stage.

Michigan moved in the opposite direction for Polymarket. On June 17, U.S. District Judge Paul L. Maloney of the Western District of Michigan denied Polymarket’s motion for a preliminary injunction, according to Bloomberg Law’s coverage of the order. The ruling found that Polymarket had not shown a likelihood of success on the merits and treated the swap question as unlikely to come out in Polymarket’s favor at that stage. That was not a final merits ruling that Polymarket’s contracts are outside the Commodity Exchange Act.

The distinction matters. A preliminary injunction asks whether a party is likely to win and whether immediate relief is warranted before final judgment. It does not settle the case. For prediction markets, the practical result is still significant: in some jurisdictions, courts have blocked state enforcement while litigation continues; in Michigan, Polymarket did not obtain that shield.

What is at stake for states and exchanges?

The fight is over the boundary between a national derivatives regime and state-by-state gambling regulation. If sports event contracts listed on CFTC-regulated designated contract markets are swaps, the exchanges argue that state gambling agencies cannot impose separate licensing and product rules on that trading. States argue that sports-outcome products sold to retail users function as wagers and should comply with gambling law.

For Kentucky, the issue is enforcement authority over products it says compete with licensed sports wagering. Kentucky legalized sports betting in 2023 and placed oversight with the Kentucky Horse Racing and Gaming Corporation. Coleman’s lawsuits argue that calling a sports wager an event contract does not exempt it from Kentucky’s licensing, consumer-protection and gambling rules.

For the CFTC, the Kentucky case is about preserving the federal market structure Congress assigned to the agency. The June 23 complaint asks a federal court to declare that Kentucky cannot use state law to shut down CFTC-regulated designated contract markets and to block enforcement that the agency says conflicts with the Commodity Exchange Act.

For Kalshi, federal designation is the center of the legal defense. For Polymarket, the litigation risk is more complicated because courts are also examining the structure of its U.S. entity and the specific products at issue. Both platforms are now part of a legal map in which outcomes depend heavily on the forum, the plaintiff and the procedural posture.

What comes next in Kentucky?

The next Kentucky milestone is the federal case now pending before Judge S. Chad Meredith in the Eastern District of Kentucky: USA and CFTC v. Commonwealth of Kentucky et al., No. 3:26-cv-00049. The June 23 docket lists the complaint and summonses, making the defendants’ first federal response the next concrete filing to watch.

That federal case now sits alongside Coleman’s June 17 Franklin Circuit Court lawsuits against Kalshi and Polymarket and the separate challenge to Kentucky’s 14.25% prediction-market transaction tax. The Kentucky dispute is no longer only a state enforcement matter. It is now a direct test of whether the CFTC can stop a state from treating sports event contracts as illegal gambling while federally regulated prediction-market cases continue in other courts.