In a fascinating development, a 1978 federal law is proving to be the horse racing industry’s most powerful weapon against the prediction market boom, and it’s working.
Prediction markets have disrupted almost every corner of American wagering. Kalshi alone pulled in over $500 million in trading volume on the Super Bowl. Polymarket has become a go-to platform for tracking the odds on everything from elections to military strikes. But if you opened either app today, on Derby day, you would find exactly zero contracts on the most famous horse race in the world.
The law that nobody expected to matter
When Kalshi and Polymarket began offering sports event contracts in 2025, their core legal argument was straightforward: they are regulated by the federal Commodity Futures Trading Commission (CFTC), and federal law preempts state gambling restrictions. That argument has been winning in court. A federal appeals court ruled in April that New Jersey could not block Kalshi from offering sports contracts to its residents.
But horse racing is not covered by state gambling law alone. It is governed by a separate federal statute, the Interstate Horseracing Act of 1978, and that changes everything.
The IHA requires that any entity wishing to accept wagers on horse racing obtain the express consent of the host track and other industry stakeholders. Churchill Downs Inc., which owns the Kentucky Derby’s Churchill Downs racetrack, has made clear it has given no such consent. The result is that prediction markets cannot simply self-certify a Derby contract with the CFTC the way they can for football or basketball. They are up against a different federal law entirely.
Polymarket blinked, briefly
This is not theoretical. Polymarket did briefly post a winner market for the 2026 Kentucky Derby before Churchill Downs asked the company to take it down. Polymarket complied. It was a telling moment: one of the most aggressive platforms in the prediction market space, a company that has run through state-level opposition in court after court, quietly pulled its contracts when faced with the IHA’s consent requirement.
Kalshi, for its part, has not posted any Kentucky Derby markets in the past two years, despite being federally approved for sports event contracts since early 2025. The legal risk is simply too clear.
Why horse racing is fighting so hard
The stakes for the racing industry are enormous. Billions of dollars flow through pari-mutuel pools and regulated sportsbooks during Derby week, funding not just track operations but purses, breeding incentives, and state tax revenues. Prediction markets are not subject to state gaming taxes and operate outside the pari-mutuel system, making them a direct threat to that funding model.
Dennis Drazin, chairman and CEO of Darby Development, said at the National Horsemen’s Benevolent and Protective Association Conference in March that he views prediction markets as “a real threat to the horse-racing industry.” His recommendation was federal litigation asserting the industry’s rights under the IHA before the platforms gain a foothold. The National Thoroughbred Racing Association has already sent a warning letter to the CFTC, arguing that Derby-based event contracts would be “contrary to the public interest” and preempted by federal law.
A door that could open
This standoff is not necessarily permanent. The NTRA’s president has acknowledged there is “a door that could be opened” if an industry stakeholder were to grant consent, which would allow a prediction market to offer horse racing contracts legally. Some in the industry, like wagering consultant Michele Fischer, believe partnership may be the smarter long-term play. “We missed the mark with sports betting for the horse-racing industry,” she noted, suggesting that a proactive deal could let racing capture a share of prediction market revenue rather than simply fighting to exclude it.
But for now, no consent has been given, the door remains closed, and on the most famous race day in American sports, Kalshi and Polymarket are watching from the paddock rather than the betting window.
I’m betting they work this all out i future years, but you’ll see a healthy cut going to the companies that control the races.
