A coalition of leading prediction market operators has sued Kentucky officials over the state’s plan to begin taxing event contracts.
The Coalition for Fair Markets filed in Franklin Circuit Court on Friday in an attempt to block the state from implementing an unprecedented 14.25% tax on prediction market transaction fees. First reported by the Associated Press, the lawsuit argues that the new law unlawfully targets federally regulated event contract exchanges.
The Coalition for Fair Markets’ membership comprises:
- Crypto.com’s North American Derivatives Exchange (NADEX)
- Kalshi
- Polymarket‘s regulated U.S. exchange QCX
Kentucky’s prediction markets legislation made waves
The lawsuit, a collaboration between several major competitors in the prediction markets sector, is a direct response to a package of legislation that Kentucky lawmakers passed earlier this year. The chief point of concern for the companies is the 14.25% tax rate on all prediction market transactions in the state of Kentucky, which is due to take effect on Jan. 1, 2027.
Legislation including House Bill 757 and House Bill 904 that was approved by the state General Assembly also makes other changes, including banning state-licensed gaming operators from doing business with platforms that offer sports event contract trading within Kentucky borders. That prohibition is due to come into force next month.
Gov. Andy Beshear vetoed the wide-ranging HB 904, which also includes raising the minimum legal sports betting age from 18 to 21, licensing and taxing peer-to-peer daily fantasy sports, banning “under” player prop bets on in-state college athletes, and more. The governor’s publicly stated decision to veto was not based on any of the bill’s specific gaming or prediction markets measures. However, the General Assembly overruled his veto the following day, April 14.
In the lawsuit, the coalition asks the court for injunctive relief to block Kentucky from enforcing the laws. It argues that the state legislation is superseded by federal derivatives laws and also claims that it is unlawful for the tax to single out prediction market platforms.
“No state currently levies a state-specific excise tax of any kind on derivatives transactions that take place on a federally designated exchange, let alone the sort of specifically targeted and discriminatory tax that Kentucky has imposed here,” reads a line from the court filing.
Kentucky AG vows to defend prediction market laws in court
Now, though they are often bitter rivals in the competition for customers’ money, three of the biggest event contracts firms have banded together to try to fight the new laws.
Kalshi’s spokesperson told SBC Americas on Monday that taxing prediction market trading on platforms that are registered with and overseen by the Commodity Futures Trading Commission (CFTC) risks pushing Kentuckians towards using platforms that are less regulated and have fewer consumer protections.
“The people who get hurt by this tax are Kentuckians,” said the spokesperson. “Taxing federally regulated markets doesn’t make anyone safer, it just pushes people toward illegal platforms with no oversight and no protections. Kalshi is an American company, regulated here at home, and we’re joining the fight for Kentuckians’ access to safe, legal markets.”
SBC Americas also reached out to Kentucky Attorney General Russell Coleman, who is named as a defendant in the prediction markets coalition’s lawsuit.
“You can bet our Office will defend these statutes and the people of our Commonwealth from out-of-state companies that seek to cancel Kentucky’s sports betting laws,” Coleman said via email. “In any courtroom, the attorneys with the AG’s Office are the odds-on favorite to win.
“Together with the policymakers in the General Assembly and the regulators at the Kentucky Horse Racing and Gaming Commission, we are well-positioned to protect this Commonwealth, just like we’ve been doing for over a century.”
Another prediction markets coalition
The Coalition for Fair Markets is different and separate from the Coalition for Prediction Markets, a group formed last year in which Kalshi and Crypto.com are joined by three other companies that also offer sports event contracts:
- Coinbase
- Robinhood
- Underdog
That coalition does not include Polymarket, but the newer Coalition for Fair Markets does.
