Illinois Court Ruling on Prediction Markets Splits Circuits Headed to Supreme Court

Prediction market providers and the US Commodity Futures Trading Commission (CFTC) secured a legal victory in Illinois federal court over the regulation of sports event contracts. On October 2, Judge Martha M. Pacold granted a preliminary injunction shielding these markets from state licensing laws, a decision that contrasts with recent rulings against the multibillion-dollar industry in other courts.

The ruling in the US District Court for the Northern District of Illinois sided with Kalshi Inc., Coinbase Global Inc., and the CFTC, stating that sports event contracts are federally regulated derivatives and that halting their operation would cause irreparable harm. However, other federal appellate panels, including the Sixth and Ninth circuits, have ruled that such contracts are bets, not 'swaps,' and thus subject to state gaming laws.

The decision also creates an intracircuit split within the Seventh Circuit, as a federal judge in Wisconsin previously allowed Wisconsin to regulate sports prediction markets as gambling. Judge Pacold noted that the federal Commodity Exchange Act likely preempts Illinois’ authority to police these markets. The judge did not rule on whether Illinois could tax prediction markets, stating that further arguments were needed.

The legal battle is expected to reach the US Supreme Court, which has already been asked to review whether sports prediction markets offer betting or swaps trading. Legal experts believe the high court may take up the case due to the growing number of decisions and the lack of factual disputes, though a decision could take years. The CFTC, under Chairman Michael Selig, has been advocating for its regulatory oversight of prediction markets, proposing rules this summer to allow most currently available sports prediction markets.