A federal judge in Chicago has blocked Illinois from enforcing its sports wagering license rules and a related criminal provision against Kalshi and Coinbase, though the court deferred action on the state's proposed prediction market fees.
U.S. District Judge Martha M. Pacold of the Northern District of Illinois granted a partial preliminary injunction on October 2, finding that Illinois' licensing regime and criminal provision are likely preempted by federal law. The ruling prevents Illinois from requiring Kalshi to hold a state license, which would have restricted trading to residents 21 and older physically present in the state and limited which sports events the platform could track.
Swap Classification Determines Federal Authority
Judge Pacold determined that Kalshi's title-game contracts—such as contracts predicting which team will win a championship—are likely swaps under the Commodity Exchange Act. This classification places them under federal regulation through designated contract markets rather than state oversight.
"Whatever the potential for gambling, a swap is a swap, and the Commodity Exchange Act requires it to be traded on a designated contract market, beyond state regulation," Pacold wrote. She established that any link between a contract and financial consequences must be "concrete and articulable."
This ruling diverges from a Ninth Circuit decision in August that classified the contracts as bets rather than swaps, and aligns with the Sixth Circuit's position that an event can include who wins a game.
Illinois Licensing and Fees
Compliance with Illinois' licensing rules would force Kalshi "to build a market solely for Illinoisans," under threat of criminal penalties, according to Pacold's decision. Other courts have previously ordered Kalshi to implement geofencing in Massachusetts, Nevada, and Michigan, though the Sixth Circuit noted that while such compliance may be costly, it is not impossible.
The judge declined to rule on Illinois' proposed transaction fees, which include a 1.75% fee on an exchange's first five million wagers and 3.5% thereafter, plus a 15% fee on gross receipts and per-wager fees of 25 or 50 cents. She ordered further briefing on whether such fees could constitute covert market regulation.
Broader Legal Landscape
The decision comes as Coinbase, which announced a partnership with Kalshi in December 2025 and launched prediction markets in January, was the lead plaintiff alongside the U.S. government and the Commodity Futures Trading Commission.
Multiple federal courts and circuits are currently examining the classification of prediction market contracts, with the Third Circuit siding with Kalshi in New Jersey in April. New Jersey petitioned the Supreme Court on September 2 to resolve conflicting circuit decisions. Robinhood and Crypto.com filed their own petitions against the Ninth Circuit's Nevada ruling in September.
