Meta description: Judge Martha Pacold blocked Illinois licensing rules for Kalshi sports contracts but left transaction fees for further briefing.
Tags: Kalshi, Coinbase, CFTC, Illinois Gaming Board, Martha Pacold, sports event contracts
Market platform: Kalshi
Category: Regulation
A federal judge in Chicago on Oct. 2 partly blocked Illinois from applying sports-wagering licensing requirements and related criminal provisions to Kalshi-listed sports event contracts. U.S. District Judge Martha M. Pacold granted preliminary injunction requests in part for Kalshi, Coinbase, the United States and the Commodity Futures Trading Commission, while leaving Illinois transaction fees for further briefing.
The ruling in the Northern District of Illinois gives Kalshi, Coinbase and the CFTC a preliminary win on federal preemption over licensing rules. It also preserves a major state-law question: whether Illinois can impose wagering-related fees on contracts the court said the state likely cannot license as sports betting. The order addresses three related cases involving Coinbase Financial Markets, KalshiEX and the CFTC against Illinois officials.
What did Judge Pacold rule on Illinois licensing rules?
Pacold found in her Oct. 2 order that the Kalshi-listed sports contracts at issue likely qualify as swaps under the Commodity Exchange Act when tied to title-game winners, and that Illinois licensing rules likely conflict with federal law as applied to those contracts. The order says the contracts can fall within the CEA because the outcome of a championship game can have material financial consequences for businesses such as broadcasters, venues, concession operators and sponsors.
That finding matters because the CEA gives the CFTC exclusive jurisdiction over swaps traded on federally regulated designated contract markets. Kalshi operates as a CFTC-regulated designated contract market, and Coinbase’s case concerns access to Kalshi-listed contracts through Coinbase’s platform. The CFTC, in its own Illinois complaint filed against Gov. JB Pritzker, Attorney General Kwame Raoul, the Illinois Gaming Board and other state officials, argued that Illinois was interfering with the federal framework for derivatives markets.
Pacold rejected Illinois’ argument that the contracts lose their federal character because customers may use them for gambling. The order states that “swaps are swaps whether they are used to gamble,” a sentence aimed at the central legal divide between state gambling regulators and federal derivatives-market regulators.
The ruling is preliminary. Pacold found likelihood of success on the licensing and criminal-enforcement questions, not final liability. The state can continue to litigate the merits, and the precise injunction language still has to be submitted and entered.
Which Illinois rules are blocked for now?
The order blocks Illinois, at least preliminarily, from enforcing sports-wagering licensing requirements and related criminal provisions against the Kalshi-listed sports contracts at issue. Pacold said those requirements would regulate which contracts could be offered, who could trade them and how the federally regulated markets would operate inside Illinois.
Illinois had treated the contracts as sports wagering under state law. The CFTC’s April 2 complaint said the Illinois Gaming Board had issued cease-and-desist letters to CFTC-regulated exchanges, including KalshiEX, Crypto.com and Polymarket, accusing them of unlicensed sports wagering. The agency argued that the state was attempting to regulate trading on national derivatives markets that Congress placed under federal supervision.
Pacold did not adopt an unlimited rule that every sports-adjacent contract listed by a CFTC-regulated entity is protected from state law. The order focuses on the contracts before the court, especially title-game winner contracts. It also distinguishes contracts that may lack the financial, economic or commercial consequences needed to qualify as swaps under the CEA.
That distinction keeps the opinion narrower than a blanket endorsement of all sports prediction markets. It protects the specific contracts at issue from Illinois licensing enforcement while leaving room for future disputes over other contract types and other state-law provisions.
What did the court leave open on fees?
Pacold did not decide whether Illinois can apply wagering-related fees to the contracts. Her Oct. 2 order left that part of the preliminary-injunction requests for further briefing, including Illinois’ newer transaction-fee structure aimed at exchange wagers.
The fee provision described in the order imposes a 1.75% transaction fee on an exchange’s first five million sports-related exchange wagers in a fiscal year and a 3.5% fee on subsequent sports-related exchange wagers. That is a count of exchange wagers, not the first $5 million in wager volume.
The legal question is different from the licensing dispute. A license requirement can directly control market access, customer eligibility and trading conditions. A fee can also affect market operations, but Pacold left open whether the Illinois fees merely impose costs or operate as a form of regulation that conflicts with the CEA.
The order also leaves existing gross-receipts and per-wager charges in the dispute. Pacold directed the parties to propose a schedule for further briefing on the fee issue by Oct. 8 and to submit proposed injunction language by Oct. 29, according to the court’s Oct. 2 order.
Why is Coinbase part of the Illinois fight?
Coinbase is in the Illinois litigation because it offers customer access to Kalshi-listed event contracts. Pacold’s order addresses Coinbase’s preliminary-injunction request alongside the requests from Kalshi, the CFTC and the United States.
That structure reflects how the sports-contract fight has expanded beyond Kalshi itself. Kalshi lists the contracts as a federally regulated exchange. Coinbase’s role concerns customer access to those contracts through its own platform. The CFTC’s role is institutional: the agency argues that state gambling enforcement cannot override federal jurisdiction over swaps traded on designated contract markets.
Illinois’ defendants include state officials and the Illinois Gaming Board. Their position is that sports event contracts function as sports wagers and therefore fall within the state’s gambling laws. Pacold’s order accepts, at this stage, the plaintiffs’ argument that the licensing rules likely conflict with federal law for the contracts at issue.
How does the Illinois ruling compare with other states?
The Illinois ruling adds to a split among federal courts over sports event contracts. In Wisconsin, U.S. District Judge William C. Griesbach denied the CFTC’s request for a preliminary injunction in July. That case is now before the Seventh Circuit, the same appeals court that covers Illinois.
The conflict is important because Pacold and Griesbach reached different preliminary conclusions inside the same federal circuit. Pacold found the title-game contracts likely qualify as swaps and that Illinois’ licensing rules likely interfere with federal derivatives regulation. Griesbach found in Wisconsin that the CFTC had not made the necessary showing for similar relief.
Other courts have also divided on Kalshi’s preemption arguments. On Sept. 25, the Sixth Circuit ruled against Kalshi in related Ohio and Tennessee proceedings, holding that Kalshi had not established its entitlement to injunctions against state enforcement. The Ninth Circuit, in August, upheld the dissolution of a Nevada injunction involving Kalshi’s sports and election contracts. In another direction, the Third Circuit has upheld relief protecting Kalshi in New Jersey.
Those rulings do not decide the Illinois cases directly, but they show why the Seventh Circuit’s Wisconsin appeal matters. If the appeals court issues a controlling decision on whether these contracts are swaps and whether state gambling rules are preempted, that ruling could affect the Illinois injunction.
What happens next in the Illinois cases?
The next date is Oct. 8, when the parties are due under Pacold’s order to propose a schedule for further briefing on Illinois’ fees. Proposed injunction language is due Oct. 29. Until the injunction is entered, the final operational terms of the order remain to be written.
The two deadlines separate the issues now before the court. The injunction language will define the current block on licensing and criminal enforcement. The fee briefing will determine whether Illinois can still impose transaction-based charges on the sports-related exchange wagers covered by the litigation.
For Kalshi, Coinbase and the CFTC, the Oct. 2 order supports their core argument that federal derivatives law likely preempts Illinois licensing rules for the title-game contracts at issue. For Illinois, the fee question remains alive, and the broader merits have not been finally decided. The next concrete step is the Oct. 8 proposed schedule for briefing on fees, followed by the Oct. 29 proposed injunction deadline.
