Illinois Court Rules Prediction Market Contracts Likely Swaps in CFTC Victory

A federal court in Illinois has granted a preliminary injunction to Kalshi, Coinbase, and the Commodity Futures Trading Commission (CFTC), blocking the state from enforcing its gaming laws against prediction markets. The ruling, issued by Judge Martha M. Pacold on October 2, determines that the event contracts in question are likely swaps under the Commodity Exchange Act (CEA), a decision that creates a legal split with a recent ruling in Wisconsin.

The court’s decision allows Kalshi and Coinbase to continue offering sports event contracts in Illinois. Judge Pacold noted that while the state’s attempt to tax prediction market operators may not conflict with federal law, its broader efforts to regulate these markets do. The ruling supports the legality of Illinois’ new tax on prediction market operators, which imposes a transaction tax of 1.75% on each exchange wager, increasing to 3.5% after the first five million wagers per fiscal year.

The ruling contrasts with a July decision in Wisconsin, where a federal court denied the CFTC’s request for a preliminary injunction, stating that event contracts likely do not qualify as swaps. The CFTC has since appealed that decision to the Seventh Circuit Court of Appeals, and Illinois officials may do the same regarding the recent Illinois ruling.

Judge Pacold emphasized that the financial instruments at issue are likely swaps, even if they are designed to be entertaining. She concluded that Illinois’ gaming laws conflict with the CEA and are likely preempted, while the state’s tax on operators may not pose the same conflict.