Kentucky sued Kalshi and Polymarket on June 17 over alleged illegal sports wagering, while a federal judge in Minnesota blocked that state’s prediction-market ban on July 27. The two moves show the same unresolved fight: whether sports event contracts are federally regulated derivatives, state-regulated gambling products, or both.
What did Kentucky allege against Kalshi and Polymarket?
Kentucky Attorney General Russell Coleman filed lawsuits in Franklin Circuit Court on June 17 against Kalshi and its affiliates, Polymarket and its affiliates, and VGW, the operator of Chumba Casino, Global Poker and LuckyLand Slots. The attorney general’s office said the companies were operating unlicensed gambling or sports wagering businesses in Kentucky.
The prediction-market complaints target sports contracts in particular. In its June 17 announcement, Coleman’s office said Kalshi and Polymarket allow users to place wagers on game winners, point spreads and player statistics without the state licenses, consumer protections and tax obligations required under Kentucky law.
“Kalshi and Polymarket are operating illegal sportsbooks in Kentucky and breaking our laws,” Coleman said in the attorney general’s release. The statement reflects the state’s core theory: a contract labeled as an event contract does not escape Kentucky gambling law if it functions like a sports bet.
The Kentucky release also cited specific figures for Kalshi. According to the attorney general’s office, sports betting made up about 70% of Kalshi’s trading volume during a selected sample period in 2025. The same release said Kalshi recorded nearly $23 billion in contract volume last year, with 89% tied to sports wagering.
Those figures matter because state gambling regulators are not treating sports contracts as a side feature. Kentucky’s case frames them as central to the business model and alleges that platforms are competing with licensed sportsbooks while avoiding state wagering rules.
Why is Minnesota’s case different?
Minnesota went further than Kentucky by enacting a law that would have made operating or assisting a prediction market a criminal felony. The law was scheduled to take effect August 1, 2026, but U.S. District Judge Katherine Menendez granted a preliminary injunction on July 27 in United States v. State of Minnesota, No. 0:26-cv-02661.
The July 27 order granted preliminary injunction motions filed by the CFTC, Kalshi and Polymarket. Menendez enjoined Minnesota from enforcing Minn. Stat. § 609.7615, as amended by SF 3432, against entities registered as designated contract markets by the CFTC until a final decision on the merits is reached.
The injunction does not end the case. It means the plaintiffs cleared the preliminary-injunction standard for now, including a showing that they were likely to succeed at least in part and would face harm if the law took effect before the litigation was resolved.
The CFTC had filed its Minnesota lawsuit on May 19. In its press release announcing the case, the agency said Minnesota’s statute had “a broader reach than any other state the CFTC has sued to date,” including weather-related event contracts. CFTC Chairman Michael S. Selig said the law would turn lawful operators and market participants into felons overnight.
That breadth is why Minnesota became a key test case. Kentucky is trying to enforce state gambling law against specific platforms and alleged conduct. Minnesota attempted to criminalize a category of activity that the CFTC says includes federally regulated markets.
Does the Minnesota injunction settle the state-federal fight?
No. The Minnesota order pauses enforcement against CFTC-designated contract markets while the case proceeds, but it is not a final ruling on whether every prediction-market contract is protected by federal law. The court’s order itself runs only “until a final decision on the merits is reached.”
The CFTC’s May 19 release placed Minnesota inside a wider enforcement map. The agency said it had also filed lawsuits against Connecticut, Illinois and New York, and had filed amicus briefs in the Sixth Circuit, Ninth Circuit and the Massachusetts Supreme Judicial Court. The same release said a federal court in Arizona had issued a preliminary injunction blocking Arizona from using gambling laws to criminally prosecute prediction-market operators.
That uneven litigation posture is important for exchanges, state regulators and sportsbook incumbents. A preliminary injunction in one federal district does not bind every state, and state gambling agencies can still press arguments that particular products or operators fall outside the Commodity Exchange Act’s preemptive reach.
The question for courts is not just whether the CFTC regulates designated contract markets. It is also whether the contracts at issue qualify as instruments under the Commodity Exchange Act, whether state gambling laws conflict with federal law, and whether a state can enforce generally applicable gambling statutes without regulating futures markets directly.
What did Congress examine at the July sports-event hearing?
The House Agriculture Subcommittee on Commodity Markets, Digital Assets, and Rural Development held a July 21 hearing titled “Examining Prediction Markets: Customer Protections and Market Integrity in Sports Event Markets.” The hearing focused on whether sports event contracts need stronger consumer protections, market-integrity rules and regulatory clarity.
Ranking Member Don Davis said in his prepared opening statement that the issue was whether the regulatory framework was keeping pace with new products while protecting consumers, preserving market integrity and providing certainty. That framing captures the policy split. Prediction-market operators argue that federally supervised event contracts belong under CFTC jurisdiction. Gaming interests and state officials argue that sports products can bypass age limits, geofencing, responsible-gambling systems and state tax structures.
The Kentucky attorney general’s June 17 release made similar consumer-protection claims. It alleged that Kalshi, Polymarket and affiliated entities offer few or no resources for users to identify or seek help for a gambling problem, which Kentucky says is required under state law.
For Congress, the dispute is not limited to the label attached to a trade. It reaches who supervises market conduct, which disclosures customers receive, how problem-gambling protections apply, and whether states lose tax revenue when sports exposure migrates from licensed sportsbooks to federally regulated contract markets.
What is the CFTC rulemaking track?
The CFTC’s rulemaking is moving separately from the state lawsuits. In a proposed rule published in the Federal Register on June 12, 2026, at 91 FR 35806, the agency addressed “Prediction Markets; Public Interest Determinations.” The proposal concerns how the CFTC would define gaming and evaluate event contracts that may be contrary to the public interest.
That rulemaking is not the same as a court ruling on Kentucky or Minnesota law. It is an administrative process that could shape how designated contract markets list or clear event contracts, including contracts connected to gaming, while the courts decide how far state law can reach.
The June 12 proposal matters because Section 5c(c)(5)(C) of the Commodity Exchange Act gives the CFTC authority to review certain event contracts involving activity such as gaming, terrorism, assassination, war or unlawful activity when the agency determines they may be contrary to the public interest. The fight is now over how that authority interacts with a market where sports contracts have become commercially significant.
What comes next?
The next concrete legal marker is the Minnesota case itself. Judge Menendez’s July 27 preliminary injunction keeps SF 3432 from being enforced against CFTC-designated contract markets while United States v. State of Minnesota, No. 0:26-cv-02661, moves toward a final decision on the merits.
Kentucky’s June 17 cases will test a different route: whether a state can use gambling and consumer-protection laws against platforms offering sports-related event contracts inside its borders. The outcome of those cases, alongside the CFTC’s June 12 Federal Register rulemaking, will determine whether sports prediction markets continue to expand under federal market supervision or face a state-by-state gambling-law blockade.
