A federal court in Illinois has granted partial preliminary injunctions to Kalshi, Coinbase and the Commodity Futures Trading Commission (CFTC), preventing the state from enforcing certain sports-wagering licensing requirements against specific sports-event contracts traded on federally regulated exchanges.
The Oct. 2 decision by U.S. District Judge Martha M. Pacold marks a significant development in the ongoing legal battle between prediction market operators and state regulators. While the ruling blocks Illinois from applying key licensing and related criminal provisions to the contracts at issue, the court has not yet decided whether state-imposed wagering and transaction fees can remain in place.
The decision leaves unresolved questions about taxation while creating a direct contrast with a separate Wisconsin federal ruling that reached the opposite conclusion on similar issues. That Wisconsin case is currently before the U.S. Court of Appeals for the Seventh Circuit.
Court Finds Certain Sports Contracts Likely Governed by Federal Law
Pacold’s ruling focused on contracts tied to championship outcomes, including examples such as whether the Chicago Cubs would win the 2026 World Series. The parties concentrated their legal arguments on those types of contracts, and the court limited its analysis accordingly.
According to the opinion, the outcomes of major sporting events can carry tangible economic consequences for businesses connected to sports, including broadcasters, arena operators, sponsors and concession providers. Based on that reasoning, Pacold concluded that such contracts likely fall within the definition of swaps under the Commodity Exchange Act (CEA), placing them under the CFTC’s exclusive oversight when traded on federally designated exchanges.
According to DeFi Rate, the judge summarized her position by writing: “Swaps are swaps whether they are used to gamble.”
Illinois argued that sports-event contracts lacked the type of economic relationship Congress intended when it expanded federal derivatives oversight following the financial crisis. The state also maintained that gambling regulations serve consumer-protection purposes, particularly regarding potentially addictive products.
Pacold disagreed with Illinois on the licensing issue. She found that state requirements governing who may trade and which contracts may be offered would interfere with the federally regulated derivatives framework. The opinion noted that Illinois’ age restrictions, geographic limitations and trading requirements could effectively require Kalshi to create a separate market exclusively for Illinois participants.
At the same time, the court declined to adopt an unlimited interpretation of what constitutes a federally protected swap. During oral arguments, Coinbase acknowledged that a contract based on the color of a sports drink poured on a coach after a victory would lack the necessary commercial consequences to qualify.
Pacold also 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.”
Legal Challenge Originated From Illinois Enforcement Action
The dispute began after the Illinois Gaming Board issued a cease-and-desist letter to Kalshi on April 1, 2025. Regulators alleged that the exchange was offering unlicensed sports wagering and warned of potential civil and criminal penalties if the activity continued.
Coinbase later became involved through a partnership announced in December 2025 that allowed users to trade Kalshi-listed contracts using cryptocurrency held through Coinbase. The company subsequently sought its own injunction.
The litigation expanded further when the federal government entered the dispute. On April 2, the CFTC announced lawsuits against Illinois, Arizona and Connecticut, arguing that state-level restrictions conflicted with the national regulatory system established by Congress for derivatives markets.
Pacold addressed three related cases together, involving Coinbase Financial Markets, KalshiEX, the United States and the CFTC. Intervening parties included the Coalition for Fair Markets, North American Derivatives Exchange and Crypto.com-affiliated OG.
The court ordered the parties to work together on the precise terms of the injunction and submit a proposed version by Oct. 29.
Fees Remain Under Review as Courts Diverge
Although the court sided with Kalshi, Coinbase and the CFTC on licensing issues, Pacold stopped short of resolving challenges to Illinois’ fee structure.
Illinois introduced additional costs for sports-related exchange trading as part of its fiscal 2027 budget. The law imposes a 1.75% fee on an exchange’s first five million sports-related exchange wagers during a fiscal year and a 3.5% fee on activity above that threshold. The challenge also involves existing gross-receipts and per-wager charges.
Pacold indicated that fees may present different legal questions than licensing requirements. In the opinion, she wrote: “Regulatory uniformity, however, does not necessarily entail uniformity in cost.”
The judge left open the possibility that a fee could still violate federal law if it became so burdensome that it effectively restricted market operations. The parties must now submit additional briefing before the court addresses that portion of the case.
The ruling arrives amid a broader series of conflicting decisions across the country. In Wisconsin, U.S. District Judge William C. Griesbach denied the CFTC’s request for a similar injunction, concluding that the agency had not demonstrated that sports-event contracts likely qualified as swaps and finding that federal approval did not automatically override state gambling laws.
Other appellate courts have also weighed in. The Sixth Circuit recently upheld the denial of an injunction in Ohio and vacated one in Tennessee, while the Third Circuit upheld an injunction protecting Kalshi in New Jersey. The Ninth Circuit previously upheld the dissolution of Kalshi’s Nevada injunction.
The differing outcomes have intensified calls for higher court review. Following the Illinois decision, Coinbase chief legal officer Paul Grewal argued that the disagreement among courts may ultimately require intervention from the U.S. Supreme Court, writing: “The lower courts aren’t buying what each other is selling. This is precisely why we have a Supreme Court. Time for SCOTUS to step up.”
For now, the Illinois case remains active, with further proceedings scheduled to determine whether the state’s transaction fees can survive federal preemption challenges.