Prediction markets hit a wall this week with the Kentucky Derby. Both Kalshi and Polymarket pulled or never posted 2026 contracts for the 152nd running set to post Saturday at 6:57 p.m. ET. The absence stems from deliberate legal pressure by Churchill Downs Inc. under the Interstate Horseracing Act of 1978. This is not another state regulator fight. It is a federal framework built specifically to protect horse racing’s pari-mutuel system.
The money says the platforms understood the exposure. Polymarket opened a Kentucky Derby 2026 market last week, refunded all trades, and removed the contracts after Churchill Downs pushed back. Kalshi has offered no Derby markets in the last two years. DraftKings and FanDuel prediction market offerings also lack Derby contracts. The gap is industry-wide.
Polymarket’s Quick Retreat
Polymarket booked the Derby in each of the past two years through its global offshore operation. This time it posted a winner market for the Run for the Roses, then refunded trades and pulled the contracts. The platform made no public statement explaining the removal.
Kalshi took a more conservative path. It began offering sports event contracts in early 2025 but has yet to provide Kentucky Derby markets at any point. The platform has NHL and NFL partnerships that permit trademark use. No such framework exists in horse racing.
Churchill Downs has real, exercisable legal leverage. Polymarket posted contracts, was told to remove them, and complied. This differs from the platforms’ battles with state gambling regulators.
The Interstate Horseracing Act as the Barrier
The 1978 Interstate Horseracing Act operates independently of the CFTC framework that prediction markets rely on for other sports. Churchill Downs CEO Bill Carstanjen describes horse racing as operating under “a different legal paradigm than other sports offerings in the United States.”
The IHA gives track operators intellectual property rights over their racing content. You need Churchill Downs’ permission to take bets on the Kentucky Derby in any form or on any platform. This creates a different kind of legal exposure than state gaming law challenges.
Tom Rooney, president and CEO of the National Thoroughbred Racing Association, put the position on record in a letter to the CFTC chairman on April 2. “The Commission has authority under the Commodity Exchange Act to prohibit contracts that are contrary to public interest. Event contracts based on horse racing outcomes that circumvent the IHA of 1978 fall squarely within this category and are furthermore preempted by other federal laws.”
The argument is straightforward. Congress designed the IHA to keep wagering connected to regulation and revenue flows. Prediction markets without consent divert volume from the authorized pari-mutuel system. That causes economic harm to tracks, stakeholders, and states that tax racing revenue.
The Financial Stakes Are Concrete
Last year the 151st Kentucky Derby generated a record $234.4 million in wagers. The entire May week of racing at Churchill Downs produced a handle of over $470 million. Those numbers explain why the industry treats unauthorized contracts as a direct threat.
Prediction markets have shown they can generate enormous volume. Kalshi took in more than $500 million in trading on the Super Bowl. Polymarket handled $529 million on the timing of U.S. strikes in Iran. Even operating offshore before its U.S. relaunch, Polymarket took in approximately $1.2 million in trades on the 2025 Kentucky Derby.
Pari-mutuel wagering works differently from fixed-odds or prediction market contracts. Every dollar in the pool contributes to the total pot. Larger pools mean better payouts and more bettors. Any volume pulled to prediction markets degrades the product for those who remain.
Dennis Drazin, chairman and CEO of Darby Development which operates Monmouth Park, captured the concern at the National HBPA Conference in March. “I think that the prediction market is a real threat to the horse racing industry unless we handle it correctly.”
Risk and Counterarguments
The legal picture carries real risk for prediction markets. Their core argument that CFTC-regulated event contracts are commodity trading, not gambling, has mostly prevailed against state regulators. The IHA creates a harder fight because it pits one federal statute against another written specifically for this activity.
Prediction market traders currently price a federal ban on sports prediction markets at just 11% probability in 2026. Bipartisan bills including the Prediction Markets Are Gambling Act and the STOP Corrupt Bets Act remain in committee. More than a dozen states continue separate court battles over licensing.
Yet horse racing adds a distinct layer of complexity. The NTRA’s April 2 letter was a formal submission into the CFTC’s ongoing regulatory process for event contracts. It put the IHA preemption argument on record before approvals. If platforms had launched horse racing contracts before final rulemaking, the window for challenge would have been narrow.
Churchill Downs itself is moving to expand its own footprint. On April 21 the company struck an $85 million deal to acquire the intellectual property of the Preakness Stakes. That gives it control of two of the three Triple Crown races.
The Bottom Line
Horse racing has so far resisted the prediction market wave that broke into NFL, NBA, NHL, and MLB. The IHA consent requirement is a durable legal barrier, and Polymarket’s decision to comply rather than contest shows the platforms recognize the difference. After eighteen years on bookmaker trading floors I have seen how protected revenue pools defend themselves when the incentive is strong enough.
The real test will come if the CFTC does not explicitly carve out horse racing. A $234.4 million handle and global brand like the Kentucky Derby remain an attractive target. The horse racing industry now faces a choice between pure resistance and negotiated consent agreements that could generate revenue on its own terms. Saturday’s Run for the Roses will run without prediction market contracts, but the structural tension will not disappear after one race.
