A recent ruling by federal judge Martha M. Pacold prevents Illinois regulators from targeting CFTC-regulated prediction platforms. The state has responded by appealing to the Seventh Circuit, challenging the decision. This brewing legal showdown mirrors similar tensions across the USA as state regulators and prediction platforms continue to clash over who exactly should regulate the sector. Many believe the debate could reach the Supreme Court.
Illinois Aimed to Tax Sports Prediction Contracts
In October, Judge Pacold entered a formal preliminary injunction against Illinois, barring state regulators from taking action against prediction platforms offering sports-related contracts. This ruling cements Pacold’s earlier judgment granting preliminary relief in part and largely shuts down Illinois’ ongoing efforts to secure a measure of control over the contentious prediction market sector.
In July, Illinois lawmakers proposed legislation to tax prediction market transactions like sportsbooks. The state envisioned a 1.75% tax for the first five million trades, increasing to 3.5% on any trades beyond that threshold. Kalshi and the Commodity Futures Trading Commission (CFTC) swiftly challenged this proposal, filing a lawsuit against the state.
Illinois officials have long been wary of prediction markets. In April, Governor JB Pritzker introduced new restrictions to curb potential abuse tied to the sector. His executive order strictly barred state employees and officials from using confidential information to participate in event-based betting platforms. Officials noted that the sector lacked sufficient safeguards, necessitating state-level intervention.
State Pushback Against Prediction Markets Is Increasing
Judge Pacold’s new injunction explicitly prohibits Illinois from taking any measures to regulate prediction platforms. This includes fees and taxes, licensing requirements, or civil and criminal enforcement actions. The state has appealed the ruling, leaving the Seventh Circuit to review the case. It remains unclear when the court of appeals will address this petition, leaving prediction platforms free to continue operating in Illinois for the time being.
Illinois now joins the growing number of states to have clashed with prediction markets. Kalshi recently filed separate lawsuits against Missouri and Louisiana, arguing that any state-level attempt to regulate its activities is illegal. The platform insists only the CFTC has the authority to regulate it. Meanwhile, the states maintain that Kalshi’s sports-related contracts are just sports betting under a different label and are subject to state laws.
These escalating tensions and the growing number of conflicting rulings by state regulators mean that Supreme Court involvement might be unavoidable. Attorneys general from 39 states and the District of Columbia have petitioned SCOTUS to take up New Jersey’s case against Kalshi. Stakeholders agree that without a definitive ruling on who regulates prediction markets, the ongoing chaos will likely continue.