Prediction Markets Penetration of the Sport of Kings Keeps Moving
Judge Liburdi’s Arizona Injunction, HB 904 Now Law, and What the Map Looks Like for Horse Racing
On May 5, 2026, United States District Judge Michael T. Liburdi signed a preliminary injunction in the District of Arizona ordering that Arizona cannot enforce its gambling statutes, including A.R.S. 5-1301 et seq., 13-3301 through 13-3312, and 16-1015, through any criminal or civil enforcement action related to event contracts listed on CFTC-regulated designated contract markets. That is not a temporary restraining order anymore. It is a preliminary injunction, which carries a higher legal threshold, and it lands atop a pattern of federal court outcomes that the racing industry’s governance class has spent two years insisting could not happen.
Past The Wire has covered the prediction market legal architecture in depth prior to the Third Circuit’s April 6 ruling against New Jersey, through the passage and veto-override of Kentucky’s HB 904, and across the CFTC’s April 2 simultaneous filing of lawsuits against Arizona, Connecticut, and Illinois. This piece is the next installment of that coverage, and the picture it adds to the canvas is not a subtle one.
How We Got Here
The Arizona confrontation escalated in stages. The state’s Department of Gaming sent Kalshi a cease-and-desist letter in May 2025, asserting that its sports-related event contracts violated state gambling law. Kalshi responded in March 2026 with a federal lawsuit arguing that the Commodity Exchange Act grants the CFTC exclusive jurisdiction over federally regulated event contracts and preempts Arizona’s statutes. Arizona’s response to that lawsuit was to file a twenty-count criminal misdemeanor information against Kalshi in state court, making it the only state among those targeted to have gone to criminal prosecution rather than stopping at administrative pressure.
The CFTC did not absorb that escalation quietly. On April 2, the CFTC and the Department of Justice filed simultaneous complaints against Arizona, Connecticut, and Illinois, seeking declaratory judgments and permanent injunctions. On April 9, the CFTC filed for a temporary restraining order specifically against Arizona, citing the criminal prosecution as the emergency requiring immediate relief. The court granted that TRO within days, halting Arizona’s criminal case. On May 5, Judge Liburdi converted that TRO into a preliminary injunction, a step that requires the court to find a reasonable likelihood of success on the merits, not merely an emergency warranting a pause.
In his 17-page order, Liburdi addressed the central statutory dispute directly, finding that the Commodity Exchange Act’s grant of exclusive jurisdiction over event contracts traded on CFTC-regulated designated contract markets likely preempts Arizona’s attempt to apply state gambling law to Kalshi’s sports event contracts. On the question of whether sports outcomes qualify as “events” under the CEA, a position Arizona argued, Liburdi rejected the state’s framing. The statutory definition of swap reaches how an event unfolds, not merely whether it occurs, and Congress drafted that language broadly and intentionally.
“Arizona’s decision to weaponize preempted state criminal law against companies that comply with a comprehensive federal regime sets a dangerous precedent. The court’s order today sends a clear message that intimidation is not an acceptable tactic to circumvent federal law.” — CFTC Chairman Michael S. Selig
It is worth noting that Judge Liburdi has signaled he may stay the injunction pending a Ninth Circuit ruling, meaning this is not a terminus. The legal battle continues. But a preliminary injunction on the merits, following the Third Circuit’s April 6 affirmance of a preliminary injunction against New Jersey, represents a second federal circuit jurisdiction now applying the same preemption logic. The map is being redrawn in real time, and the states drawing it with gambling enforcement tools are losing the early rounds.
The Third Circuit Line Held
The New Jersey ruling, which PTW covered after it was issued, was the first circuit-level decision to apply the preemption framework to sports event contracts. The Third Circuit held that the CEA grants the CFTC exclusive jurisdiction over swaps traded on a CFTC-licensed designated contract market, that Kalshi’s sports-related event contracts qualify as swaps under that definition, and that allowing New Jersey to enforce its gambling laws against those contracts would create an obstacle to executing the CEA. The court further held that the CEA’s own limiting principle, which carves out space for state laws applicable to transactions not conducted on or subject to the rules of a registered entity, does not apply because designated contract markets are registered entities by definition.
New Jersey’s Attorney General stated publicly that her office was evaluating options, including en banc review and Supreme Court appeal. The Supreme Court has not spoken on this question. The circuit split may resolve differently in other circuits. None of that changes the fact that two federal courts have now agreed, at the preliminary injunction stage, that state gambling enforcement is likely preempted when applied to CFTC-regulated event contracts. For a legal theory that racing’s institutional defenders characterized as speculative, it is performing fairly well.
Kentucky HB 904 Is Now Law. What It Actually Says.
While the Arizona litigation was moving through federal court, Kentucky finished its own legislative process on the same terrain. HB 904 passed the Senate 24 to 13 and the House 64 to 19 on April 1. Governor Andy Beshear vetoed the bill on April 13, not on any substantive gambling policy grounds, but specifically because language in the bill would allow the Kentucky Lottery Corporation and the Kentucky Horse Racing and Gaming Corporation to file administrative regulations without requiring the governor’s review and signature. Beshear’s objection was procedural and institutional, a separation-of-powers argument about executive authority over agency rulemaking, not a policy rejection of fixed-odds wagering, prediction market restrictions, or any other provision in the bill.
The GOP supermajority overrode that veto on April 14, with the House voting 67 to 7 and the Senate voting 26 to 5. HB 904 is now law, effective in 90 days from the override.
What the law actually contains on prediction markets is worth stating precisely, because earlier drafts were more aggressive than what survived. The version that became law prohibits licensed sports betting operators, racetracks, and fantasy sports companies from offering prediction markets in Kentucky or partnering with companies that do so in Kentucky. The original formulation of Section 25 would have made the affiliation prohibition national in reach, meaning a company like FanDuel or DraftKings would have had to choose between its Kentucky license and its prediction market product operating anywhere in the United States. That provision was scaled back. Under the law as enacted, operators may retain Kentucky licenses as long as they do not offer event contracts to Kentucky residents. The nuclear version of Section 25 did not survive the legislative process.
HB 904 also introduces fixed-odds wagering on horse races in Kentucky for the first time, taxed at 9.75 percent for on-track bets and 14.25 percent online, and it includes language preventing The Jockey Club from denying Thoroughbred registration in Kentucky on the basis of a stallion cap. That provision inserts the state directly into the breeding-policy dispute that PTW has covered separately. The bill is, in other words, not a one-dimensional prediction market bill. It is a comprehensive gaming rewrite that happened to include prediction market restrictions as one of its components, and reading those restrictions in isolation misrepresents what it does.
The IHA Wall Still Stands. And That Is a Different Fight.
Here is where the racing-specific thread of this story separates from the general preemption narrative, and where PTW’s coverage has tried to hold a distinction that most outlets are not drawing.
The Arizona injunction, the New Jersey Third Circuit ruling, and the CFTC’s complaints against Connecticut and Illinois all involve one legal question: can a state apply its gambling statutes to event contracts offered by CFTC-regulated designated contract markets. The answer, based on what federal courts have found so far, is probably no. The Commodity Exchange Act preempts that attempt.
Horse racing operates under a different federal statute. The Interstate Horseracing Act of 1978 grants track operators consent rights over wagering on their races. Churchill Downs did not invoke Arizona gambling law to block Kalshi from offering Kentucky Derby contracts. It invoked the IHA. The NTRA formally warned the CFTC in a letter that event contracts based on horse racing outcomes that circumvent the IHA fall within the category of contracts contrary to the public interest and are preempted by other federal laws, plural, meaning federal statutes beyond the Commodity Exchange Act.
That is a categorically different legal argument than what Arizona tried. Arizona was asserting state authority. The racing industry is asserting a separate federal statutory framework that predates the CEA’s event contract provisions and was not addressed by the Third Circuit or Judge Liburdi. Polymarket briefly launched Derby contracts in 2026 and withdrew them after Churchill Downs pushed back. Kalshi, which won federal approval to offer sports event contracts, has never offered Kentucky Derby markets. The IHA wall, as of today, is intact.
Whether it stays intact is a different question. The CFTC’s posture under the current administration is aggressively pro-preemption. It has filed lawsuits in three states simultaneously, obtained two federal court wins, and its chairman has used language about intimidation and exclusive authority that leaves little interpretive ambiguity about where the agency stands. The NTRA’s IHA argument has not been tested in federal court against the CFTC’s current position. That test has not come yet. When it does, it will be the most consequential legal proceeding in the prediction market-horse racing intersection, and it will involve questions that the Third Circuit and Judge Liburdi have not yet answered.
What the Racing Industry’s Governance Class Owes Bettors
PTW’s coverage of this subject has never been purely adversarial toward the racing industry’s legal position. The IHA argument is a real one. The consent framework has genuine merit as a mechanism for ensuring that racing content is not simply extracted without compensation. We have covered CDI’s $85 million acquisition of the Preakness Stakes intellectual property in this context. The racing industry has legitimate interests in the wagering on its product.
What the industry’s governance class does not have a legitimate interest in is using legal architecture to permanently exclude a competing product category rather than finding a framework for engagement with it. PTW has made this argument since 2014, when we first began advocating for exchange wagering and fixed-odds products. The argument has not changed: the pari-mutuel model’s structural deficiencies cannot be fixed from inside the pari-mutuel model. The handle erosion, the pool quality degradation, the declining bettor base, none of those trend lines reverse because Kalshi cannot offer a Derby contract.
Michele Fischer, a wagering consultant and vice president of SIS Content Services who moderated an HBPA Conference panel earlier this year, put the industry’s choice clearly: the racing industry missed its opportunity with sports betting, and should not repeat that mistake with prediction markets. Finding a framework for participation, rather than pure resistance, could generate revenue for the industry rather than redirecting it elsewhere. That observation came from inside the industry. It is not an outsider critique.
The preemption wins in New Jersey and Arizona do not directly threaten the IHA framework today. But every federal court ruling that cements the CFTC’s exclusive jurisdiction over event contracts, and every month that prediction market platforms grow their user base and trading volumes while horse racing’s pools shrink, narrows the window in which the racing industry’s governance class can choose engagement over entrenchment on its own terms.
The institutions that lobbied for Section 25 in its most aggressive form, that refused to engage PTW’s interview requests for our Jockey Club series, that settled the HISA fee dispute in secret and continue to govern horse racing’s economics as though the competitive landscape of 2014 still exists, built the political and legal architecture of resistance. The federal courts are not dismantling that architecture today. But they are testing its load-bearing walls, and Judge Liburdi’s signature on May 5 is evidence that at least some of those walls are thinner than advertised.
What Comes Next
The Arizona preliminary injunction is not final. Judge Liburdi has signaled openness to a stay pending Ninth Circuit review, which means the next phase is an appellate proceeding that could produce the second circuit-level ruling on this preemption question. Connecticut and Illinois cases remain pending. The Supreme Court has not acted. New Jersey is evaluating en banc review.
The IHA challenge, if it comes, will be the defining legal moment for horse racing’s relationship with prediction markets. It will force federal courts to weigh two federal statutes against each other, the CEA’s preemption framework and the IHA’s consent architecture, in a fact pattern that has not yet been fully briefed or argued. When that happens, PTW will be there.
In the meantime, the map that racing’s governance class drew in 2024, state-level resistance plus IHA exclusion equals permanent separation from prediction market competition, has lost one of its two legs. The state-level resistance leg is cracking under federal preemption rulings. The IHA leg is still standing. But the weight it is being asked to carry just increased.
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