Kalshi Ends Federal Court Losing Streak With Partial Win Over Illinois

Judge Says a Swap Is a Swap

Kalshi has won a partial preliminary injunction against Illinois, its first federal court win since a Minnesota judge blocked that state’s prediction market ban in July. On Oct. 2, U.S. District Judge Martha M. Pacold of the Northern District of Illinois granted in part requests from Coinbase, the U.S. government, and Kalshi, finding the state’s sports wagering license regime and a related criminal provision likely preempted by federal law.

For now, the ruling stops Illinois from requiring Kalshi to hold a state license, which would have limited trading to people 21 and older who are physically in the state, and restricted which sports events its contracts can track. Compliance, Pacold wrote, would force Kalshi “to build a market solely for Illinoisans,” under threat of criminal penalties.

Other courts have rejected that argument. The Sixth Circuit said last month that geofencing may be costly, but “expensive does not mean impossible,” and state courts in Massachusetts, Nevada and Michigan have ordered Kalshi to geofence. In Connecticut, Judge Vernon Oliver found compliance unlikely to add much cost because Kalshi is already building geofencing for other states.

Coinbase, the lead plaintiff, announced a partnership with Kalshi in December 2025 and rolled out Kalshi-powered prediction markets in January, letting its 100 million users trade Kalshi contracts with cryptocurrency held on Coinbase. The U.S. government and the Commodity Futures Trading Commission (CFTC) brought their own case, and the court decided the three suits together.

Pacold tailored her ruling to contracts on who wins a title game, such as “Will the Chicago Cubs win the 2026 World Series?” She found such contracts are likely swaps. “Whatever the potential for gambling, a swap is a swap, and the Commodity Exchange Act requires it to be traded on a designated contract market, beyond state regulation,” she wrote.

That breaks with the Ninth Circuit, which held in August that the contracts are not swaps because they are bets. Pacold cited that ruling directly when she wrote that “swaps are swaps whether they are used to gamble.” She agreed with the Sixth Circuit that an “event” can include who wins a game, but rejected the argument, which that court accepted, that the event itself must be inherently economic.

Pacold set a limit: any link between a contract and financial consequences must be “concrete and articulable.” Coinbase conceded that a bet on the color of the sports drink dumped on a coach after a Chicago Bears win would not qualify.

Illinois argued that a CFTC rule bars gaming contracts, making Kalshi’s listings illegal anyway. Pacold said the state “may have a case,” but noted the CFTC “has never held that Kalshi’s contracts are impermissible gaming contracts” and backed Kalshi in the litigation. Separately, the CFTC has proposed defining event contracts as swaps while excluding casino games.

No Action on State Fees

The judge did not rule on the states proposed fees. A new Illinois state budget law adds a 1.75% transaction fee on an exchange’s first five million “exchange wagers” and 3.5% after that, on top of a 15% fee on gross receipts and a per-wager fee of 25 or 50 cents. “Regulatory uniformity, however, does not necessarily entail uniformity in cost,” Pacold wrote, but a fee that effectively regulates the market could still be preempted. “What defendants cannot do overtly, they cannot do covertly,” she added. The judge ordered further briefing on the matter.

The decision splits from a Wisconsin ruling within the same federal appeals circuit. In July, U.S. District Judge William Griesbach denied the CFTC a preliminary injunction against Wisconsin, finding similar contracts likely are not swaps. That case is now before the Seventh Circuit.

The Third Circuit sided with Kalshi in New Jersey in April, while the Ninth and Sixth Circuits ruled against it. New Jersey asked the Supreme Court to resolve the split on Sept. 2, and Robinhood and Crypto.com filed their own petitions against the Ninth Circuit’s Nevada ruling on Sept. 10 and 11. Kalshi’s response to New Jersey is due Nov. 9.

A federal appeals court ruled Sept. 25 that Ohio and Tennessee can enforce their gambling laws against Kalshi’s sports contracts.…