Court wins for prediction markets against state regulators have been rare in 2026, but an Illinois federal judge sided with the Commodity Futures Trading Commission (CFTC) and two of its registrants on Friday.
U.S. District Judge Martha Pacold wrote in a memorandum and order on Oct. 2 that three parties filed similar requests for preliminary injunctions against Illinois Attorney General Kwame Raoul:
- Coinbase
- CFTC
- Kalshi
The order combines three cases involving Coinbase, KalshiEX, and the CFTC (with the Coalition for Fair Markets and Crypto.com-affiliated OG as intervenors). The judge ordered the parties to confer and file a proposed injunction consistent with her opinion by Oct. 29.
Although the verdict is not a final ruling in the cases, it ends a long losing streak for prediction markets in the litigation battle with states over sports event contracts, most prominently including notable verdicts in favor of states in the U.S. Courts of Appeal for the Sixth and Ninth Circuits.
Why did Illinois judge grant preliminary injunctions?
The Illinois judge wrote in her analysis that the state cannot enforce laws that are preempted by federal law. She opined that since Kalshi and other companies’ sports event contracts constitute swaps, some Illinois state laws are likely preempted by the Commodity Exchange Act (CEA).
Pacold added that markets on the winner of a championship game likely qualify as swaps under the CEA because the underlying outcomes are “associated with a potential financial, economic, or commercial consequence.”
Meanwhile, Pacold also determined that the plaintiffs demonstrated that “they will be irreparably harmed without an injunction,” and suggested that the other equitable factors in the case support the idea of issuing an injunction.
For all of those reasons, she opined that the prediction markets plaintiffs are likely to succeed on the merits of the case.
Judge: Kalshi bets are ‘fun’ swaps, but they’re also ‘bets’
The judge used varying language to describe sports event contracts throughout the 28-page memorandum and order.
In one line that Kalshi co-founder and COO Luana Lopes Lara particularly liked, Pacold wrote that “many of the financial instruments at issue are likely swaps as defined by the Commodity Exchange Act—they just happen to be swaps that people find entertaining and fun.”
While she stressed that sports contracts qualify as swaps in her opinion, the judge also repeatedly referred to event contract trading as “bets”, including four times in the first paragraph of her summary of the factual and procedural background of the case.
“Anyone with a Kalshi account this summer could have bet on whether Spain or Argentina would win the World Cup,” Pacold wrote. “Or they could have bet on whether LeBron James would sign with the Miami Heat. That second bet, a few months ago, cost around 10¢. And the contract, once James signed with the Philadelphia 76ers, settled for $0.00. Anyone who bet on James signing with the 76ers got $1.00.”
Another circuit split pending?
At the appeals level, Illinois falls under the remit of the U.S. Court of Appeals for the Seventh Circuit. Pacold’s reasoning directly contrasts with a ruling in another Seventh Circuit state, Wisconsin.
There, federal Judge William Griesbach denied the CFTC a preliminary injunction, finding that the commission had not shown that sports-event contracts likely qualified as swaps. He also concluded that just because the CFTC gives its registrants permission at the federal level to offer sports contracts, that does not guarantee their right to offer them in defiance of state gambling prohibitions.
The Wisconsin case is on appeal to the Seventh Circuit level.
Illinois licensing and tax plan an overreach, says court
The CFTC sued Illinois in April, alleging that the state and other states made “aggressive and overzealous” attempts to curb prediction markets.
Kalshi then filed a lawsuit against Illinois in June after the state included prediction markets regulatory measures in its fiscal budget, including defining sports “exchange wagers” as state-regulated sports betting and requiring CFTC-registered exchanges to pay millions of dollars for state licenses and to pay a per-wager tax starting at 1.75% on all sports event contract trading. Kalshi alleged that constituted a “clear violation of the Supremacy Clause with respect to the regulation of event contracts.”
In her opinion, Pacold suggested that some of the state’s new laws “impermissibly control the sale of Kalshi’s swaps; others raise further questions.” She added that Illinois’ age, geographic, and trading restrictions would force Kalshi to build a market solely for Illinois residents under the threat of criminal penalties.
While the judge noted that Illinois authorities “may have a case” that Kalshi is impermissibly listing certain contracts in violation of the CEA Special Rule’s stance on gaming contracts, she stated that the defendants are attempting to exercise control over the operation of the trading of swaps on federally regulated markets. That is something she argued is not permissible under precedent.
“The CFTC has never held that Kalshi’s contracts are impermissible gaming contracts. It has never ordered Kalshi to remove its contracts. And it also supports Kalshi’s position in this litigation. It would be odd indeed, then, to adopt defendants’ theory, which essentially boils down to a claim that the CFTC and Illinois have consistent regulations. The court is thus left without a reason to think Illinois’s licensing laws are not preempted.”
