Kalshi and CFTC Score Court Win as Judge Halts Illinois Prediction Market Rules

A federal judge in Illinois has handed Kalshi and the CFTC a win in their fight over prediction markets.

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Judge Martha M. Pacold ruled on October 2 that Illinois cannot enforce several of its gambling laws against Kalshi while the case plays out. The decision covers three joined cases brought by Coinbase, the United States and CFTC, and Kalshi. 

The judge found that the contracts Kalshi sells are likely “swaps” under the Commodity Exchange Act, which puts them under federal oversight. That means much of Illinois law likely conflicts with federal law and cannot stand. The ruling is not final, but it stops a long run of losses for prediction markets in similar court battles across the country.

Judge sides with Kalshi on core swap question

The heart of the case, and many around the country, comes down to one question: whether the contracts Kalshi sells are swaps. Illinois argued no, saying the contracts amount to sports betting and fall under its Sports Wagering Act, but the judge disagreed.

She pointed to the Commodity Exchange Act’s definition of a swap, which covers contracts “dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence.”

Kalshi’s title contracts, like betting on whether the Chicago Cubs win the 2026 World Series, fit that language, the court found. The judge said the words “occurrence, nonoccurrence, or the extent of the occurrence” capture not just whether an event happens but how it resolves. She rejected the narrow reading that a game is the event and the win is just a result of it.

The court also found that winning a title game ties to a “|potential financial, economic, or commercial consequence.” That phrase, the judge wrote, “reads about as broadly as it could.” But she added limits: any link must be concrete and articulable, not speculative.

A bet on what colour sports drink gets dumped on a coach’s head, for example, would not qualify. The judge also brushed aside arguments that Congress never meant to federalize gambling. “The pertinent question here is not ‘Are sports-event contracts gambling?,’ it is “Are sports-event contracts swaps?” she wrote. A swap stays a swap, she said, even if people use it to gamble.

Illinois licensing rules likely premepted, fees need more judgement 

With the swap question settled, the judge turned to whether Illinois law conflicts with federal law. She relied on a Seventh Circuit ruling, American Agriculture, which held that state laws “govern[ing] or supervis[ing] the operation of or trading on” a designated contract market are preempted.

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Illinois threatened to enforce two sets of rules against Kalshi and Coinbase: licensing requirements that would force them to get state approval and follow state trading rules, and fees on wagers.

The judge found the licensing rules likely preempted. She said they would force Kalshi to build a market just for Illinoisans, under threat of criminal penalties, and subject it to “conflicting regulatory demands.” Illinois argued that Kalshi’s contracts are illegally listed under a CFTC rule banning gaming contracts, so the state should be able to act.

The judge rejected that, noting the CFTC has never ordered Kalshi to remove its contracts and supports Kalshi in the case. On the fees, the judge held off. She said a state can impose a cost on an activity without creating a conflict, pointing to a Supreme Court case on ERISA.

But a fee could cross the line if it effectively regulates the market. She asked for more briefing on the fees before deciding.

Kalhi and prediction markets not out of the loop yet

The decision is not a final ruling in the cases. It grants the preliminary injunctions in part and continues them in part, meaning the fee question and other issues still need to be worked out.

Evn so, it ends a rough stretch for prediction markets in court. States have scored notable wins in the U.S. Courts of Appeal for the Sixth and Ninth Circuits over sports event contracts. 

In her Friday ruling, Pacold dismissed Illinois’ argument that Coinbase, the CFTC and Kalshi waited too long to sue. She said Coinbase filed after announcing its Kalshi partnership and likely lacked standing before then, while the CFTC and Kalshi’s delay did not cause prejudice.

The judge closed by noting that many of the financial instruments at issue are likely swaps under the Commodity Exchange Act, “they just happen to be swaps that people find entertaining and fun.”

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