In the aftermath of the 152nd Kentucky Derby, Kentucky Attorney General Russell Coleman is taking steps to assert the state’s power to oversee sports-related event contracts from prediction market platforms like Kalshi and Polymarket, intensifying the legal clash between state gaming authorities and federally regulated prediction markets.

State attorneys general have cautioned that prediction market platforms providing sports-event contracts circumvent consumer protection laws and taxation frameworks already enforced on licensed sportsbooks, prompting a bipartisan group to challenge federal control over this arena.

In correspondence addressed to the chairman of the Commodity Futures Trading Commission, attorneys general contended that the CFTC lacks jurisdiction over sports-related event contracts available through platforms such as Kalshi and Polymarket.

Prediction markets enable participants to trade contracts associated with the outcomes of upcoming events. As per the coalition’s assertion, the platforms provide contracts related to game outcomes, point differentials, and player statistics while evading state gambling regulations related to taxation, licensing, and consumer protections.

The attorneys general noted that event contracts are essentially comparable to state-regulated sports wagering products, specifically in Kentucky, where oversight is exercised through the Kentucky Horse Racing and Gaming Corporation.

Kentucky joins regional coalition

Kentucky Attorney General Russell Coleman became part of this coalition effort after the running of the Kentucky Derby amidst ongoing discussions on whether sports-related prediction markets should be governed by federal commodities regulations or state gambling laws.

“There’s essentially no difference in monetary terms between prediction markets’ sports contracts and traditional sports betting, and Kentucky has both the right and the duty to establish regulatory guidelines,” Coleman stated. “We, alongside almost all other state attorneys general, urge the federal government to acknowledge that states like Kentucky possess the capability to safeguard our residents, as they have for over a century.”

Coleman collaborated with attorneys general from Ohio, Nevada, Tennessee, New York, Utah, and New Jersey in leading this initiative. Attorneys general from various states, including Alabama, Alaska, Arizona, and many others, lent their support to this movement.

States emphasize existing gambling oversight

The coalition highlighted that states have the necessary regulatory frameworks and expertise required to manage sports wagering and mitigate gambling-related issues, including concerns linked to mental health and financial well-being.

Critics of federal oversight pointed out that Kentucky has regulated sports wagering since before the establishment of the CFTC in 1974, with the Kentucky General Assembly founding the first Kentucky Racing Commission in 1906 to regulate horse racing in the Commonwealth.

The letter underscores that millions of Americans are classified as having problematic or pathological gambling behaviors and posits that state regulators are more appropriately placed to monitor sports betting activities and protect residents.

These remarks from state officials emerge as legal challenges involving prediction market operators persist across various jurisdictions, including allegations against Kalshi and Polymarket for offering unlicensed betting products.