Who Owns the Kentucky Derby?
In typical Past the Wire fashion—uncensored, unfiltered, and always a few lengths ahead of the pack—it’s time to pull the curtain back on the latest “warning” from Churchill Downs Inc. (CDI).
Years ago, and again just recently, I wrote that exchange wagering was the inevitable future of this game. I said we needed to get in front of it before it got in front of us. Well, “it” has arrived in the form of prediction markets like Kalshi and Polymarket, and the industry is reacting exactly how you’d expect: by reaching for the legal whip instead of the innovative bit. It reminds me of when the industry slept through the Poker boom.
Here’s the deep dive into why this CDI vs. Prediction Market showdown is the most impactful fight in the sport today. More so than the CAW fight.
On a recent earnings call, CDI CEO Bill Carstanjen issued a stern reminder to prediction markets: “You need our express consent. You can’t just do it without that.”
On the surface, it sounds like standard corporate posturing. But legally, CDI is leaning on a federal hammer that other sports leagues don’t have: the Interstate Horseracing Act (IHA) of 1978. Under the IHA, you can’t take a wager on a horse race across state lines without the “express contractual permission” of the host track.
CDI’s argument is simple: Whether you call it a “derivative contract” or a “financial swap,” if it’s based on the Derby, it’s a wager. And if you didn’t pay the host fee, you’re “pirating” the signal.
The Prediction Market Counter: “It’s a Fact, Not a Feed”
Prediction markets are fighting back with a Federal Preemption strategy. Platforms like Kalshi argue that because they are regulated by the CFTC (Commodity Futures Trading Commission), they fall under the Commodity Exchange Act, which they claim overrides state gaming laws and even the IHA.
They aren’t using CDI’s video feed or official data. They use decentralized “oracles”—independent validators who look at public news reports to settle the bet. Their stance? A race result is a public fact. Once that horse crosses the wire, the result belongs to history, not a corporate balance sheet.
Generally Federal Law trumps State Law. That never clarified legal marijuana. This will be a very interesting case with long term ramifications.
The Industry Health Paradox
As I’ve noted previously, the Kentucky Derby isn’t an “automatic” to be around forever. The industry is currently in a “Great Contraction.” We’ve seen a 57% drop in the real value of betting handle since 2003, driven at least in part by the cannibalization of pools by Computer-Assisted Wagering (CAW).
Prediction markets represent a threat to CDI’s “day of days.” If a bettor can get 4-1 on the favorite on Polymarket with 0% takeout, why would they bet into a CDI pool with a 17-20% “haircut”? I wouldn’t, would you? This is the dilemma. This is a price and question the industry brought upon itself by never coming up with better wagering options than Jackpot Pick 6’s and roulette. The gamblers were ignored despite being the customer.
- Better for the Bettor: Absolutely. It’s a peer-to-peer dream.
- Worse for the Industry? Maybe. Those takeout dollars fund the purses and the very “integrity” CDI claims to protect. If the handle migrates to exchanges that pay $0 back to the horsemen, the biological foundation of the sport crumbles.
Bottom Line: Ahead of the Curve
We told you this was coming. While the industry argued over crop rules and betamethasone, Wall Street-backed technology was building a way to eat racing’s lunch. It was inevitable.
CDI is rightly protecting their crown jewel, but you can’t sue the future out of existence. Prediction markets are the “Exchange Wagering 2.0” I advocated for a decade ago. If the industry doesn’t find a way to integrate them—and get a fair piece of the action—the “Most Exciting Two Minutes in Sports” might eventually find itself with plenty of “price discovery” but no horses left to run.
Still Looking for the Edge?
We don’t guess at Past the Wire; we know. Whether it’s dissecting ThoroGraph sheets or the latest federal litigation, we keep you in the winner’s circle.
The Future of Prediction Markets in Racing
This video provides a deep dive into the regulatory friction between traditional wagering and the new digital frontier, a topic we’ve been tracking long before it hit the mainstream headlines.
I think nobody can blame CDI for pulling out all stops to protect The Kentucky Derby. Anyone in the game knows this is the day or better said weekend they rely on and survive and thrive off. For themselves and their shareholders they are clearly on the right side of the argument. For the bettors and the industry, well that’s not that simple and remains to be seen.
