Why the prediction market might skip the Kentucky Derby

Leading prediction markets Kalshi and Polymarket have enabled their users to bet on almost anything over the past year — from the outcome of political contests in US cities to the winner of sporting events.

When it comes to the 2026 Kentucky Derby, however, it appears they are bowing out.

As of Thursday morning, neither Kalshi nor Polymarket had listed a market for the winner of Saturday’s Derby in Louisville, its sport’s most prestigious annual event and a marquee date on the sports betting calendar. A Kalshi spokeswoman declined to comment when asked if the company plans to accept merchandise at the Kentucky Derby. Polymarket briefly opened a market last week then took it down — apparently at the request of Churchill Downs.

“We have reached out to Polymarket and asked for the bets to be removed,” Churchill Downs spokesman Breck Thomas-Ross told ESPN. “And Polymarket complies.”

Polymarket did not respond to multiple requests for comment sent by e-mail.

A prediction market’s caution around horse racing may seem out of place, especially given the way they do it. Sports gambling companies challenge, Engaged in legal battles With states and businesses that have continued to offer Objections raised from the League Like the NFL. But industry experts say there are good reasons to stay away from the Kalshi and Polymarket games, including interstate horse laws. The 1978 Act created a federal regulatory framework for betting on horse racing, giving state racing commissions and racetracks significant power over betting on their events.

“Right now, the law is pretty clear about what (prediction markets) are allowed to do without the consent of our sport,” Tom Rooney, president and CEO of the National Thoroughbred Racing Association, said in an interview with ESPN.

“That door might be open if a race track or state gaming commission or horsemen’s association or something like that gives consent. We don’t have that yet.”

Rooney, a former U.S. congressman, tried to start a potential fight with the prediction markets earlier this month by sending a letter to the Commodity Futures Trading Commission, the federal agency that oversees them. He warned that any business on horse racing would be illegal and “could cause substantial economic damage to the horse racing industry.”

The CFTC has not publicly said whether it will approve horse racing markets or whether it believes such businesses would violate interstate horse racing laws. A spokesperson for the CFTC declined to comment on the record to ESPN, and Rooney said the agency has yet to respond to his letter.

For the industry at large, prediction markets represent a huge threat — an intrusion that could override the long-standing financial mechanics of sports.

Decades before a 2018 U.S. Supreme Court decision paved the way for the current sports betting boom, the only legal way to bet on sports in most states outside of Nevada was to watch in a window at a racetrack. Simulcasting later allows a racetrack to bet on – and bet on – a race elsewhere, with both locations sharing a share of the revenue. And over time, gambling became intertwined with the game itself, according to John Holden, an Indiana University professor who specializes in sports gambling and regulatory issues.

“Betting on the Kentucky Derby is the event,” he said. “That’s not what a Yankees-Red Sox game looks like to people. People can bet on it, but people will go to that game without betting on it. When people go to the Kentucky Derby, they’re going to bet on the horse race.”

Last year, for example, bettors across all platforms wagered a record $234 million on the Kentucky Derby, according to Churchill Downs, along with an additional $239 million on other races earlier in the week.

These wagers help sustain horse racing financially by generating tax revenue that is reinvested in the sport. For example, in Kentucky, 1.5 cents of every dollar wagered on horse races is taxed and redirected to fund future races or to fund racetrack operations and breeding programs. This translates to approximately $2.25 million that has been reinvested in Kentucky’s horse racing ecosystem since July 2024.

Thomas Lambert, an applied economist at the University of Louisville’s College of Business, said the forecast market could disrupt the cycle. Any money directed to that entity instead of the official gambling platform will not go into the same state tax pool. A smaller tax pool, in turn, can lead to smaller purses, which can lead to smaller fields for races and make future events less attractive to bet on — fueling a spiral.

“If too many people use these prediction markets, the tracks basically sink,” said Lambert, who also teaches courses in Louisville’s equestrian industry program, which receives funding from state tax revenue on horse racing bets.

Lambert noted that Kentucky benefited significantly from tax revenue generated by historic horse racing machines at race tracks, which allow bettors to bet on anonymous and archived horse races that amount to playing a slot machine.

But as the horse racing industry faces troubling declines across the country, even a modest shift toward the prediction market — and away from state-regulated gambling — could have an impact. According to statistics compiled by The Jockey Club, the number of races held in the United States fell by nearly 5% last year, while the total betting handle on U.S. races fell by 2%.

Entities like Churchill Downs, which runs the Kentucky Derby, are so protective of their turf. In addition to partnerships with sportsbooks like DraftKings and FanDuel, the company has its own online betting platform, TwinSpires, from which it receives a cut of revenue. Churchill Downs too Recently agreed to pay $85 million for intellectual property, trademark and branding rights to the Preakness Stakes, the second leg of the Triple Crown. (The Kentucky Derby is first, and the Belmont Stakes is third.)

Kentucky state lawmakers recently passed a bill that would prohibit the state’s racetracks from cutting contracts with prediction markets, but some in the horse racing industry see such contracts as a potential avenue for growth. Rooney said such a deal could still materialize. In the meantime, though, he’s “definitely concerned” about how Kalshi, Polymarket and others might affect his game.

“It’s like the new kid on the block trying to get by without playing by the rules,” Rooney said. “So, I’m concerned on that front. … But I’m comforted that we have (interstate horse-drawn carriage laws). And I’ll take the law to court any day to navigate the prediction markets.”

Holden said he envisions the prediction market eventually challenging the interstate horsemanship law by arguing that their market does not include betting. It will be a new angle in their ongoing fight with the states, he said, and will probably end up in the same place.

“I think this is really another stop on the road to the Supreme Court,” Holden said.