Kalshi has filed a lawsuit against Illinois ahead of new state prediction market regulations, arguing that federal law gives exclusive supervisory authority to the Commodity Futures Trading Commission (CFTC) and prevents Illinois from implementing its own licensing and tax requirements.
The company filed its lawsuit Tuesday in U.S. District Court for the Northern District of Illinois. The case names the Governor J.B. PritzkerAttorney General Kwame Raoulofficials from the Illinois Gaming Board, and other state representatives as defendants. Kalshi asked the court to issue a temporary restraining order, preliminary injunction, and permanent injunction to halt enforcement of the law before it becomes effective on July 1.
New Illinois Requirements Face Court Challenge
At the heart of the dispute is Senate Bill 3019, a bill approved by Illinois lawmakers and signed by Pritzker as part of the state’s budget package. The law introduces a framework that treats sports-related exchange betting as legal, state-regulated sports betting. It also requires prediction market operators registered as designated contract markets (DCM) with the CFTC to obtain an Illinois license and pay associated fees.
The law includes additional financial obligations for operators. According to court filings, Illinois plans to impose a transaction tax on sporting event contract trades at 1.75% per trade, with the rate increasing to 3.5% after the first five million sports trades each year. Separate reporting on the law also notes that the broader measure creates a 0.2% privilege tax on certain digital asset transactions.
Kalshi argued that this provision conflicted with federal law because its event contracts were traded through a special contracts market regulated by the CFTC. The company stated that the Commodity Exchange Act gives the federal agency sole authority over such contracts.
In his complaint (pdf), Kalshi stated that Illinois had committed a “clear violation of the Supremacy Clause in relation to event contract rules”.
The company further argued: “As a result, on July 1, 2026, when the related provisions of SB 3019 take effect, Kalshi will be subject to criminal penalties in Illinois unless Kalshi ceases offering sporting event contracts to Illinois residents that are completely legal in the eyes of Kalshi’s exclusive federal regulators or pays millions of dollars to Illinois and becomes subject to the State’s regulatory regime.”
Submission continues: “Even worse, either option would put Kalshi in direct violation of federal law because the CFTC requires that all DCMs offer uniform access nationwide to their markets.”
Company Says State and Federal Rules Conflict
Kalshi claims the Illinois law creates a situation where compliance with one set of regulations can trigger violations of other regulations. According to the company, removing sporting event contracts from Illinois residents would conflict with federal requirements governing uniform access to CFTC-regulated markets.
The lawsuit states that the company would face significant operational costs if it attempted to limit Illinois users through geolocation controls and other technological measures. Kalshi argued that the costs could not be recovered even if they were ultimately successful in court.
The complaint states that the company will suffer irreparable harm if the law is allowed to take effect without legal intervention.
“If Kalshi were to comply with the new state law by ceasing to offer its sporting event contracts in Illinois, this would put Kalshi in violation of the CFTC’s uniformity requirements, harm Kalshi’s commercial interests, and require the company to implement a complex and expensive technological solution to limit access in Illinois — incurring unrecoverable costs when Kalshi ultimately prevails in the action,” the company said according to SBC Americas.
Wider Regulatory Dispute Continues
The lawsuit represents the latest development in an ongoing dispute over whether prediction markets should be regulated as federally supervised derivative products or as gambling activities subject to state oversight.
Illinois officials previously attempted to stop bidding on Kalshi’s sporting event contracts. This latest legal battle follows a cease-and-desist letter sent by Attorney General Raoul more than a year ago.
Kalshi’s case is also consistent with actions taken by the CFTC itself. In April, federal regulators sued Illinois, along with Arizona and Connecticut, accusing the states of playing catch-up “aggressive and overzealous” efforts against prediction market operators. The CFTC then amended its complaint to challenge Illinois’ new law and related enforcement actions, while seeking its own preliminary injunction.
Illinois is one of nine states currently facing CFTC lawsuits related to prediction markets. Kalshi has also been involved in more than a dozen legal disputes across the country, both as a plaintiff and defendant.
The debate has spread beyond Illinois. Several states have considered or submitted proposals to regulate and predict marketplace operator taxes, including Kentucky, New Jersey, Ohio, and Pennsylvania.
The same day Kalshi filed his lawsuit in Illinois, the CFTC sued Kentucky over a planned 14.25% excise tax on prediction market trading. Kalshi has challenged Kentucky’s proposal in court, joining Polymarket and Crypto.com in the legal effort.
As Illinois’ July 1 implementation date approaches, courts will now determine whether the state can enforce its new licensing and taxation framework while broader jurisdictional disputes continue.
