Illinois Judge Partially Blocks State Licensing Rules on Sports Contracts

A federal judge in Illinois has partially granted requests from Kalshi, Coinbase, and the Commodity Futures Trading Commission (CFTC) for preliminary injunctions on Oct. 2. The ruling, handed down by U.S. District Judge Martha M. Pacold, finds that state licensing rules likely conflict with federal law governing certain sports-event contracts. The court's decision supports the companies' ability to offer contracts on who wins a title game without submitting to Illinois's sports-wagering licensing regime.

Pacold's opinion also addresses the issue of whether contracts on title-game winners qualify as 'swaps' under the Commodity Exchange Act. She found that contracts on title-game winners likely qualify as swaps because the underlying outcomes can have concrete, material financial consequences. However, she rejected an unlimited definition of swaps, citing a bet on the color of a sports drink dumped on a coach's head as an example of a contract that would not have the requisite consequences.

The ruling does not settle every state restriction or every type of sports contract. The parties must submit a proposed injunction by Oct. 29, and the court left challenges to Illinois's wagering fees unresolved. The case has already reached executed trades, with the CFTC ordering Kalshi to honor trades a Michigan state court had directed it to cancel.

Paul Grewal, Coinbase's former chief legal officer, called for Supreme Court intervention: 'The lower courts aren't buying what each other is selling. This is precisely why we have a Supreme Court. Time for SCOTUS to step up.'