Kalshi is suing Illinois in an attempt to block the state’s plan to start requiring prediction markets operators to apply for licenses and pay taxes, which is due to take effect next week.
In a lawsuit filed Tuesday in the U.S. District Court for the Northern District of Illinois, the company requests an injunction and declaratory relief against Illinois Gov. JB Pritzker, Attorney General Kwame Raoul, and Illinois Gaming Board (IGB) officials.
Kalshi asserts that Illinois has committed a “clear violation of the Supremacy Clause with respect to the regulation of event contracts”. It asked the court to grant it a temporary restraining order, a preliminary injunction, and a permanent injunction against the state.
Why does Kalshi say it needed to sue Illinois?
The heart of the matter in Illinois is Senate Bill 3019, which was approved by lawmakers and ratified by Pritzker last week as part of Illinois’ new fiscal budget.
That legislation:
- Newly defines sports “exchange wagers” as legal state-regulated sports betting
- Requires designated contract markets (DCMs) registered with the Commodity Futures Trading Commission (CFTC), such as Kalshi and Polymarket, to pay millions of dollars for a state license
- Implement a “transaction tax” on sports event contract trading, at 1.75% per trade (doubling to 3.5% beyond the first five million sports trades per year)
In its court complaint, Kalshi posits that such a move “impermissibly usurps” the CFTC’s exclusive jurisdiction over event contracts.
“As a result, on July 1, 2026, when the relevant provisions of SB 3019 go into effect, Kalshi will be subject to criminal penalties in Illinois unless it either ceases to offer Illinois residents sports event contracts that are perfectly lawful in the eyes of Kalshi’s exclusive federal regulator or pays Illinois millions of dollars and submits to the State’s regulatory regime,” wrote counsel for the firm.
“Worse still, either option will put Kalshi in direct violation of federal law because the CFTC requires that all DCMs offer nationwide, uniform access to their markets.”
Kalshi says it can neither comply nor ignore
Kalshi claimed it will be “irreparably harmed” if it is not granted temporary injunctive relief in Illinois before the new law comes into effect next week.
“If Kalshi complies with the new state law by ceasing to offer its sports event contracts in Illinois, that would put Kalshi in violation of the CFTC’s uniformity requirements, harm Kalshi’s commercial interests, and require the company to implement complex and expensive technological solutions to limit access in Illinois — incurring costs that would not be recoverable when Kalshi ultimately prevails in the action,” added the company.
The lawsuit is the latest escalation of a battle between Illinois and Kalshi that began when Raoul first sent a cease-and-desist letter to the firm more than a year ago in an attempt to shut down its sports event contract trading within the state.
Kalshi does as its regulator does
In its 31-page lawsuit, Kalshi noted that it is following in the footsteps of its own federal regulator.
The CFTC sued Pritzker and Raoul in April, accusing the state (as well as Arizona and Connecticut) of “aggressive and overzealous” conduct in their respective bids to crack down on prediction markets. As noted by several observers, the commission amended its court complaint against the state to challenge the new state law, as well as officials’ enforcement actions. Like Kalshi’s new lawsuit, the CFTC is asking for a preliminary injunction to block the legislation.
Illinois is one of nine states sued by the CFTC over prediction markets, and one of more than a dozen cases in which Kalshi is embroiled in litigation either as a plaintiff or a defendant.
Meanwhile, several other states have either approved or mooted the idea of regulating and taxing prediction market operators, along with others including:
- Kentucky
- New Jersey
- Ohio
- Pennsylvania
On Tuesday, the same day as Kalshi filed its lawsuit against Illinois, the CFTC sued Kentucky over its plans to implement a 14.25% excise tax on prediction market trading in the state. Kalshi has already sued Kentucky for the same reason, in a rare collaborative effort with Polymarket and Crypto.com.
