Kentucky AG says state has authority to set rules on prediction markets
Kentucky Attorney General Russell Coleman has argued that the state has the authority to regulate sports betting activity offered through prediction market platforms.
Coleman joins a bipartisan effort by other attorneys general in arguing that sports-event contracts offered by prediction markets should be regulated by the states.
Coleman’s comments come shortly after the Kentucky Derby and amid broader national debate over whether sports-related prediction markets fall under state gambling laws or the jurisdiction of the federal Commodity Futures Trading Commission.
“There’s not a dollar’s worth of difference between prediction markets’ sports contracts and sports betting, and Kentucky has the jurisdiction and the responsibility to set the rules of the road,” Coleman said. “Along with nearly every other AG in the country, we’re asking the federal government to recognize that states like Kentucky are well-positioned to protect our people, just like we have been doing for over a century.”
The coalition argued that because sports betting can cause certain risks to the public, inducing mental health and financial security, state regulators, not the Commodity Futures Trading Commission, are better suited to protect residents from gambling harm.
Aside from the push from state attorneys general, legal actions against prediction market operators have already emerged in recent months, with states suing the likes of Kalshi and Polymarket for offering unlicensed betting.
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2026/02/17: Indian Gaming Association says prediction markets pose urgent threat to tribes
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The Backstory
Why prediction markets are facing a jurisdictional clash
Prediction markets have moved from a niche product to the center of a national tug of war over who sets the rules: states that regulate gambling or the federal Commodity Futures Trading Commission. The stakes are rising as platforms expand sports-event contracts that look and feel like wagers, drawing lawsuits, legislation and tribal opposition. Recent court decisions have swung toward federal oversight, emboldening operators and the CFTC while pushing state officials to test new tactics to assert control or capture revenue. The dispute now touches sovereignty, tax policy and the shape of a fast-growing corner of retail speculation.
Courts tilt toward federal oversight
A pivotal moment arrived when a federal appeals court barred New Jersey from stopping Kalshi from offering event contracts in the state. In a 2-1 ruling, the Third Circuit held that Kalshi’s offerings fall under the Commodity Exchange Act and that the CFTC’s authority is exclusive, preempting state gambling rules. The decision, reported in a federal court ruling limiting New Jersey’s reach, reinforced a growing line of cases siding with market operators.
That win did not stand alone. The CFTC has pressed the jurisdictional case in multiple venues and touted favorable outcomes. The agency’s chair, Michael Selig, is monitoring Minnesota after lawmakers advanced a bill to curb certain markets and is fresh off a district court order blocking Arizona’s action against Kalshi. Those moves followed an appellate victory in New Jersey and a preliminary injunction in Tennessee. The campaign is detailed in coverage of the CFTC’s plan to target Minnesota after a string of state lawsuits. Industry advocates see a path that could end at the Supreme Court if states persist and split rulings emerge.
The upshot: each court win deepens the presumption that CFTC-registered exchanges can list event contracts nationally without state-by-state licensing, at least until a higher court or Congress says otherwise. That trajectory has invited a backlash from state officials who say sports-event markets are gambling by another name and should be constrained like sportsbooks.
States escalate with lawsuits and new taxes
New York has taken one of the sharpest swings. Attorney General Letitia James sued Coinbase Financial Markets and Gemini Titan, arguing their event-based platforms amount to illegal gambling that dodges licensing, taxes and consumer protections. The complaint says neither holds a New York Gaming Commission license and seeks penalties, profit forfeiture and prospective licensing requirements. Coinbase’s legal chief countered that these are CFTC-regulated products, not casino bets, a stance outlined in New York’s lawsuit targeting Coinbase and Gemini Titan over prediction markets. The case squarely tests whether exchanges can rely on federal registration to bypass state gambling regimes.
Other states are mixing litigation with legislative experiments. Iowa advanced a bill that would require prediction market operators to secure a state permit costing $20 million upfront with a $100,000 annual renewal, and to pay a 20% tax on adjusted revenue plus a 20% excise on each contract purchase. The measure, described in Iowa lawmakers’ push to tax and license prediction markets, aims to capture revenue and impose oversight even as courts weigh jurisdiction. The Legislative Services Agency estimates a one-time windfall around fiscal 2027 driven by permit fees, then a tapering take over time. Kalshi urged delay, citing ongoing litigation over federal primacy.
Taken together, these actions show a two-track state strategy: challenge operators in court as unlicensed sportsbooks while building parallel licensing and tax frameworks that could apply if federal preemption falters or if platforms opt to comply to avoid market disruption.
Tribal sovereignty and consumer safeguards at issue
For tribes, the dispute cuts deeper than market design. The Indian Gaming Association convened leaders and lawmakers in Washington to argue that sports-event contracts routed through futures exchanges erode hard-won regulatory authority and undercut economies that fund essential services. Speakers said platforms lack basic guardrails like effective geofencing, which can let them operate on tribal lands without approval, and warned that the CFTC’s stance has intensified tensions with tribal regulators. The concerns are outlined in the Indian Gaming Association’s warning that prediction markets pose an urgent threat to tribes.
The association framed these offerings as illegal sports betting dressed as financial products. Panelists linked the regulatory gap to potential harms—financial loss, addiction and exposure of minors—traditionally mitigated by state and tribal systems through licensing, responsible gaming programs and tax reinvestment. The push has support in Congress: Nevada Rep. Dina Titus introduced legislation aimed at preventing sports-event contracts on these platforms, signaling interest in a federal fix that could reassert gambling law norms over exchange-listed markets.
What to watch as the policy map shifts
The CFTC has momentum and is signaling readiness to confront new state measures, as seen in its posture toward Minnesota and in litigation from Arizona to Tennessee. That approach, summarized in the agency’s stepped-up targeting of states, raises the odds that a clear circuit split or a high-profile injunction drags the Supreme Court into the fight. If the Court takes the case, it could settle the preemption question that now drives business planning and enforcement choices across the industry.
Meanwhile, states are unlikely to wait. New York’s litigation against crypto-affiliated platforms, as covered in the suit against Coinbase and Gemini Titan, may become a template for pairing gambling laws with consumer protection claims. Iowa’s bid to set steep permits and layered taxes, described in the Iowa bill, could inspire copycat proposals aimed at revenue capture and leverage over operators seeking certainty. Tribes will press Congress for guardrails that keep sportsbooks and sportsbook-like products within established compacts and oversight structures, reinforced by the arguments raised in the Indian Gaming Association briefing.
The policy stakes are concrete. For operators, a federal-first model enables national scaling through a single regulator but risks unpredictable state crackdowns and reputational blowback. For states and tribes, the outcome affects tax bases, responsible gaming programs and authority over products that mirror sports wagering. For consumers, the rules will determine where they can trade, what protections apply and whether products marketed as financial instruments are, in practice, regulated like bets.
Until a definitive ruling or congressional action, the market will be governed by a patchwork: CFTC permissions tested in federal courts, state lawsuits challenging sports-event contracts and legislative experiments that mix licensing with taxation. Each court order and bill refines the boundary between gambling and commodities law—and sets the tone for how speculative markets tied to everyday events will operate in the United States.
