Prediction markets company Kalshi has sued Illinois officials, alleging a new state law taxing sports-related prediction market wagers violates federal law and usurps the CFTC's regulatory authority. The law takes effect July 1.
The lawsuit highlights a growing conflict between states and federal regulators over the classification and taxation of prediction markets, with potential implications for the future of these platforms and the broader gambling industry.
Prediction markets company Kalshi has filed a lawsuit against Illinois state officials, including Governor JB Pritzker and Attorney General Kwame Raoul, over a new law that the company claims "expressly bans sports event contracts" on its platform. In its filing with the US District Court for the Northern District of Illinois, Kalshi alleged that the state legislation usurped the authority of the US Commodity Futures Trading Commission (CFTC) over prediction markets.
The company stated that the law, Illinois Senate Bill 3019, which requires prediction market platforms to be licensed in the state to offer sports event contracts, violates federal law. Kalshi asserted that it would be "irreparably harmed" when the law takes effect on July 1. The complaint detailed that ceasing to offer sports event contracts in Illinois would put Kalshi in violation of CFTC's uniformity requirements, harm its commercial interests, and necessitate costly technological solutions to restrict access in the state.
The Illinois law, passed as part of a fiscal year 2027 budget package, also includes a 15% tax on gross receipts from sports-related prediction market wagers and a 0.2% tax on crypto transactions. Kalshi argued that complying with the state's licensing and regulatory regime would also lead to similar irreparable harms. Conversely, disregarding the state requirements could subject Kalshi to criminal penalties.
This lawsuit is the latest development in a jurisdictional dispute between federal regulators and state authorities concerning sports betting on prediction markets. The CFTC, under Commissioner Michael Selig, maintains exclusive authority over such companies under the Commodity Exchange Act, classifying event contracts as "swaps." The agency has initiated legal actions against state authorities regarding similar restrictions, including a recent case in Kentucky. Some experts anticipate these legal battles may eventually reach the US Supreme Court due to the conflicting claims.