A federal preliminary injunction barring Illinois from enforcing state gambling laws against certain federally regulated sports-event contracts took effect Oct. 30, while state officials moved immediately to challenge it in the U.S. Court of Appeals for the Seventh Circuit.
Judge Martha M. Pacold of the Northern District of Illinois granted the requested relief to Kalshi and Coinbase on Oct. 2, according to Sports Betting Dime. The order prevents Illinois from applying licensing requirements, associated fees and taxes, and related criminal provisions to sports-event contracts and swaps available through Commodity Futures Trading Commission-regulated designated contract markets and futures commission merchants.
Attorney General Kwame Raoul, Gov. J.B. Pritzker and other state officials asked the Seventh Circuit to reverse and vacate the preliminary-injunction order. The appeal does not itself resolve whether the injunction remains in force; the appellate court will determine its effect while the challenge proceeds.
Pacold found that the event contracts at issue were most likely swaps under the Commodity Exchange Act, and that the plaintiffs had shown they would suffer irreparable harm without preliminary relief. She wrote that many of the instruments were likely swaps “that people find entertaining and fun,” and concluded that Illinois was likely attempting to exercise control over Kalshi’s sale of those swaps.
The judge also found that Kalshi is a designated contract market and that substantial elements of Illinois law likely conflict with, and are preempted by, the Commodity Exchange Act. Her ruling said the plaintiffs were likely to succeed at least in part on that argument.
The dispute centres on SB 3019, whose relevant provisions were scheduled to take effect July 1. In its June complaint, Kalshi alleged that the law would require designated contract markets offering sports-event contracts to obtain an Illinois licence, pay potentially millions of dollars and comply with state gambling regulation. It also alleged that the statute limited trades to people physically located in Illinois, conflicting with a CFTC requirement for designated contract markets to provide impartial nationwide access.
Kalshi’s position is that the Commodity Exchange Act gives the CFTC exclusive jurisdiction over event contracts traded or executed on federally designated contract markets. The company operates a CFTC-regulated derivatives exchange on which the agency has permitted sports-event contracts.
Illinois has taken the opposite policy position before the CFTC. In May, Raoul joined a bipartisan group of 41 attorneys general urging the agency to recognise state authority over sports-related prediction markets, arguing that the products amount to unregulated sports betting rather than financial risk-management tools.
The Illinois decision also conflicts with a July ruling from the Eastern District of Wisconsin, which held that event contracts likely were not swaps and that federal law did not preempt Wisconsin gaming laws. The CFTC has appealed that Wisconsin decision to the same Seventh Circuit.
