A US federal judge has given Kalshi and Coinbase partial protection from Illinois prediction-market restrictions while the case continues. Judge Martha Pacold found that many of the contracts are likely to qualify as swaps under federal law, potentially limiting state enforcement. Illinois’ transaction-fee tax remains unresolved.
Kalshi and Coinbase secured preliminary protection from several Illinois gambling restrictions while the litigation continues
The court found that many of the contracts at issue are likely to qualify as swaps under federal commodities law
Illinois may still be able to impose its transaction fee tax because that part of the dispute remains unresolved
The ruling creates a different legal outcome from recent litigation involving state gambling authorities in Ohio and Tennessee
The case could influence how operators assess state level exposure while federal event contract rules remain under review
The dispute centres on whether federally regulated event contracts can also be subjected to state gambling restrictions. Pacold concluded at the preliminary-injunction stage that the plaintiffs had demonstrated a likelihood of success on at least part of their federal pre-emption argument. The court focused on Illinois rules governing which contracts could be offered, where they could be sold and who could access them.
Judge Martha Pacold said:
Plaintiffs are therefore likely to succeed — at least in part.
The decision grants preliminary relief rather than a final ruling on the legality of prediction markets in Illinois. The underlying cases remain active and further proceedings will determine how much of the state framework can ultimately be applied.
The litigation follows an earlier federal challenge involving Illinois, Arizona and Connecticut. Ace Alliance previously covered the CFTC dispute with the three states over prediction-market oversight, providing the regulatory background to the Illinois case now moving through federal court.
Illinois had previously treated Kalshi’s sports-event contracts as unlicensed sports wagering.
The Illinois Gaming Board’s official cease-and-desist records show that the regulator ordered Kalshi to stop offering sports wagering without an Illinois licence. The state argued that internet and mobile sports betting falls within the Illinois Sports Wagering Act regardless of the federal regulatory framework used by prediction-market platforms.
The latest court order now restricts how far Illinois can enforce those rules while the litigation continues.
For operators, the distinction is significant. The ruling does not establish a general exemption from state gambling laws, but it provides Kalshi and Coinbase with immediate protection from parts of Illinois’ enforcement framework.
That could affect how other platforms assess market access, product availability and litigation risk in states where sports-event contracts are being challenged by gaming regulators.
The most important issue left open is Illinois’ transaction-fee tax.State lawmakers approved a structure allowing Illinois to collect a share of transaction fees generated by prediction-market companies. Pacold indicated that a tax on company revenue may raise different legal questions from state rules determining which contracts may be offered or which customers may trade them.
The court has therefore not extended the same preliminary protection to every part of Illinois’ framework. For B2B prediction-market operators, that distinction means a successful federal pre-emption argument may not automatically remove state-level financial obligations. Companies could still face taxes or other requirements even where product-level gambling restrictions are limited. The next stages of the case will determine whether Illinois can maintain that part of its regime.
The Illinois decision also arrives shortly after a different result in Ohio and Tennessee. The Sixth Circuit recently rejected Kalshi’s request for preliminary protection against state gambling enforcement, taking a different approach to the classification of sports-event contracts and federal pre-emption. Ace Alliance’s report on the Sixth Circuit ruling involving Ohio and Tennessee provides the details of that decision.
The two cases do not directly overturn one another because they involve different courts and procedural settings. They nevertheless illustrate how prediction-market operators can face materially different outcomes depending on jurisdiction. For businesses operating nationally, that fragmentation is becoming an increasingly important compliance issue.
The legal disputes are developing while federal regulators reconsider the framework governing event contracts.Two CFTC rulemaking actions concerning event contracts and the definition of swaps recently moved to White House review. Ace Alliance’s coverage of the CFTC event-contract rules under White House review outlines how those proposals could affect the same classification questions now appearing in state litigation.
That makes the Illinois case relevant beyond a single jurisdiction. The immediate ruling protects Kalshi and Coinbase from significant parts of Illinois’ enforcement approach, but it does not settle the broader division between federal commodities oversight and state gambling regulation.
For prediction-market operators, exchanges and gaming regulators, the next question is how courts and federal rulemaking will define that boundary as more states test the limits of their gambling laws.
