Illinois Appeals Federal Block on Prediction Markets Licensing and Taxation Law
Judge Martha Pacold blocked Illinois from enforcing its June law requiring licenses and a 1.75% tax on CFTC-registered prediction markets. The state appealed to the Seventh Circuit, joining Wisconsin cases that reached differing conclusions on CEA preemption. The consolidated appeals will address whether event contracts are swaps shielded from state gaming rules.
SCCG Take — Operators face continued uncertainty until the Seventh Circuit clarifies federal preemption limits. Regulators must weigh enforcement risks against the potential for fragmented state rules stifling market growth.
Illinois has appealed a federal preliminary injunction blocking enforcement of its new law that classifies sports event contracts as regulated wagers.
On Oct. 30, Judge Martha Pacold issued the order in three consolidated cases: Coinbase v. Raoul, CFTC and Coalition for Fair Markets and OG.com v. Illinois, and Kalshi v. Raoul. The ruling bars Attorney General Kwame Raoul, Gov. JB Pritzker, and the Illinois Gaming Board from applying the Sports Wagering Act, illegal gambling statutes, or Internet Wagering provisions of the Illinois Admin Code to swaps traded on CFTC-registered platforms such as Kalshi.
The June legislation required CFTC-registered exchanges to obtain state licenses and pay a 1.75% per-wager tax. Kalshi, the CFTC, and Coinbase challenged the measure as preempted by the Commodity Exchange Act. The CFTC had previously sued Illinois in April over cease-and-desist actions, later amending its complaint to address the new statute. Similar litigation targets Kentucky.
Grounds for the Injunction
Pacold determined that sports event contracts qualify as swaps under the Commodity Exchange Act because their outcomes are associated with a potential financial, economic, or commercial consequence. She concluded that certain Illinois laws are likely preempted by the CEA. The plaintiffs showed likely success on the merits and demonstrated they would suffer irreparable harm without immediate relief. The order prohibits all licensing requirements, fees, taxes, criminal provisions, enforcement actions, subpoenas, or investigative processes against compliant CFTC platforms.
Seventh Circuit Consolidation and Open Questions
The appeal requests reversal of the district court order and now joins two pending prediction markets appeals from Wisconsin in the U.S. Court of Appeals for the Seventh Circuit. In the Wisconsin matter, a judge denied the CFTC a preliminary injunction after finding that the commission had not established event contracts as swaps and that federal permission does not override state gambling rules. The Seventh Circuit also recently granted Kalshi permission to appeal a May ruling allowing Indian Gaming Regulatory Act claims by the Ho-Chunk Nation to proceed.
The contrasting district court results create enforcement uncertainty for operators and platforms pending appellate review. Illinois officials declined comment on the litigation. The Seventh Circuit's handling of these joined cases will test the boundaries of federal preemption in this sector and may determine how readily states can impose licensing and taxation overlays on CFTC-approved event contract trading.
Gaming, betting and prediction markets — the desk’s read, every weekday.
Subscribe →