Why You Can’t Bet The Kentucky Derby on Kalshi
How Horse Racing Did What the NFL Could Not – Keep the Prediction Markets Out. And What Racing Should Do Next.
By Pete Fornatale | In the Money Media
Last Saturday, Polymarket the largest prediction market platform in the world, quietly refunded every bet on its 2026 Kentucky Derby market and pulled the page. If you go to the URL now, you get an error. There was no press release or additional information – just the ghost of a marketplace that might have been quite popular. Kalshi, the other major prediction market operator, never posted any Derby “contracts,” as these betting markets are euphemistically known, at all.
In a year when prediction markets are taking on the NFL, the NCAA, and more than a dozen state regulators simultaneously — and more than holding their own — horse racing just did something none of those organizations could do. It stopped them.
The Weapon Nobody Else Has
The prediction market legal war is enormous and getting bigger. Fortune reported on April 20 that the fight might be headed for the Supreme Court. On April 24, in a scene that illustrates the current climate, the CFTC and 38 state attorneys general filed opposing briefs in the same Massachusetts court on the same day. The argument can be summed up thusly: the federal regulator argues it has sole jurisdiction over prediction markets, and nearly every state AG in the country saying the opposite. At its core it’s a good, old-fashioned states’ rights battle.
The NFL, NBA, and major sports leagues have been fighting prediction markets through letters, lobbying, and whatever state-level legal tools they can find. It’s an especially tough challenge because sports betting is regulated state by state. There is no federal statute that gives any professional sports league control over wagering on its product.
Horse racing has one: the Interstate Horseracing Act of 1978.
The IHA is a federal law that gives racetracks, horsemen, and state racing commissions explicit consent authority over wagering on their content. No consent, no legal wagering. Period. And critically, because the IHA is federal law, the prediction markets can’t just make the same argument that has worked for them in state courts — that the CFTC’s federal authority preempts state gaming regulations. As Dennis Drazin, CEO of Monmouth Park, whose years-long push to bring sports betting to New Jersey helped drive the legal fight that ended the federal ban on sports betting in 2018, put it to me: “You can’t say that the CFTC and their federal regs preempt federal law.”
That distinction is crucial here. The sports leagues can send letters. Racing can file federal lawsuits.
ESPN’s David Purdum, who covers the sports betting industry, confirmed the significance: “That federal statute is at the least a card that the horse racing industry has that the NFL and sports leagues don’t.”
Churchill Downs Inc. has been aggressive about asserting this position. CEO Bill Carstanjen said in February that CDI has not given any prediction market permission to facilitate wagering on the Derby. The NTRA sent a formal letter to the CFTC chairman on April 2 arguing that the IHA preempts the Commodity Exchange Act when it comes to horse racing wagering. And Drazin told me he’d be “in court as soon as it took me time to draft the complaint” if any prediction market took bets on a Monmouth Park race.
This is presumably why prediction markets, typically emboldened by legal challenges, have seemingly blinked in this instance.
Don’t Build a Wall. Build a Deal.
Does this mean that racing has successfully defended its territory and should go about its normal business? Drazin takes a more nuanced view.
“Today I stand completely opposed to the prediction market getting into horse racing,” he said. “But if the numbers were big enough, and they do different things that the industry feels comfortable with, it’s worth a conversation.”
Then he went further: “I think that we’re leaving money on the table by not trying to figure this out.”
I believe Drazin is referring to the potential marketing opportunity that prediction markets could provide – with a new way of betting horse racing available to a whole new group of potential players, and one that’s already available in their pockets via apps on their phones.
And this ties in to a couple of racing’s known issues. There is, quite correctly, plenty of concern about the current win pools in horse racing. For one thing, in a world where young bettors are used to getting fixed odds on everything they bet, parimutuel win pools are hard to market. I have long contended that the first time a young bettor thinks they have 5/2 on a winning horse and gets 8/5, racing may lose a customer for life. And then there is the reality of computer assisted wagering, a key issue to the Kentucky legislature and bettors everywhere. As a result of an outdated tote system and the largest bettors making last second bets, it is common to see odds change after the gates open. Even if everything happening is on the level, that makes the win pool a most unappealing wager to the largest section of racing’s potential new customers.
A fair deal with prediction markets – where racing is compensated in some way for putting on the show – solves a lot of problems in one fell swoop.
Prediction markets’ user base skews younger. They are, in Drazin’s words, “a whole new market . . . you take bets from people that will never bet on a horse race.” I raised the idea that racing could treat a prediction market partnership as a loss leader. Even if the direct revenue from matched bets is modest, the marketing value of being on these platforms is significant. Drazin agreed with the hypothesis. “You’re a hundred percent right,” he said. “It’s a loss leader, but it’s like a whole new market.”
Racing should believe in itself here. I think we have the potential to be the best gambling game there is. We need to get new eyes not just on the sport, but on betting the sport. Eventually some of the new players want to participate in the biggest rewards available to gamblers that the sport has to offer and want to make bets in the parimutuel system – in doing so they become annuities to the business of racing. Using prediction markets to attract new bettors and as a way to introduce fixed odds and solve the current win pool issues just makes sense.
And why would prediction markets be interested in racing? Aren’t we just small beer on a platform where you can bet everything from Supreme Court rulings to who’ll be a bridesmaid at Taylor Swift’s wedding? Not necessarily. There’s a content play here for them. I asked Purdum whether prediction markets would have any interest in racing beyond the Derby’s marquee commercial appeal. The answer was immediate. “If you’re able to get horse racing and getting races overseas and international and onto your site and keeping people playing, 100%, any kind of business would want that.”
This is an important point to underline: this could be a symbiotic relationship. There is a race going off somewhere in the world every hour of the day. During the pandemic, table tennis became one of the most popular products on sportsbooks because matches were always available. Racing has the same quality — an endless stream of content — and prediction markets need content to keep users engaged on their platforms. Racing has something they want. That’s a negotiating position.
What a Deal Could Look Like
Drazin was candid about the challenges. The prediction market business model is different from a sportsbook — they match bettors against each other rather than taking risk, and their margin comes from a small fee on each transaction. Whether there’s enough revenue in that model to offer racing the kind of host fees it currently receives from simulcasting is doubtful.
But that’s the wrong framework. If prediction markets are treated as a marketing channel — an on-ramp to the sport for a generation that might never walk up to a mutuel window — the revenue threshold changes. The value isn’t just in the fee per transaction. It’s in the eyeballs, the engagement, and the downstream wagering those new fans generate when they discover a sport that races live, every day, all year long.
“Sometimes it’s not everything’s about money,” Drazin said. “Sometimes it’s more like getting more eyes to pay attention to horse racing.”
He suggested the NTRA as the body that could negotiate on behalf of the industry and said the revenue distribution — how money flows back to tracks, horsemen, and purse accounts — would need to be worked out collectively. “I would not do it without the whole industry being willing to do it,” he said.
That’s the hard part. Racing is not the NFL. It doesn’t have a commissioner who can strike a league-wide deal. But it does have the NTRA, it does have HISA providing at least a framework for national coordination, and it does have the IHA giving it something no other sport in America possesses — genuine leverage over the platforms that want its content.
The Bigger Picture
The prediction market legal war isn’t going away. Purdum believes it ends at the Supreme Court. Drazin does too. The political dynamics — Trump’s CFTC chair is aggressively defending the platforms’ federal authority, while Trump Jr. has financial ties to both Kalshi and Polymarket — mean this isn’t getting resolved quickly or cleanly.
But horse racing doesn’t have to wait for the Supreme Court. The IHA exists now. It worked this weekend. And while every other sport in America is scrambling to figure out whether prediction markets are legal, racing already knows the answer: not without us saying yes.
The sport that has struggled for decades to attract new fans, to compete for attention against every other form of entertainment, to solve the perception problems that drive casual bettors away from the pari-mutuel product — that sport now has something the biggest, richest, most powerful leagues in the world don’t have. A seat at the table and the legal authority to set the terms.
It would be a shame to waste it.
Pete Fornatale is the host of the In the Money Media Youtube Channel.
