Key facts
- Kalshi sued Illinois officials, challenging the state's classification of its prediction markets as sports wagering.
- Illinois recently passed a law imposing new taxes on sports betting conducted on prediction markets.
- Kalshi argues that the Commodity Futures Trading Commission (CFTC) has exclusive jurisdiction over its operations.
- The company considers the state's $15 million licensing fee and subsequent annual fees too costly and burdensome.
- Kalshi alleges that complying with Illinois law would force it to choose between violating state or federal regulations.
Kalshi, a prediction market platform, has filed a lawsuit against Illinois officials, including Attorney General Kwame Raoul and Governor J.B. Pritzker, challenging the state's recent classification of its event contracts as unlicensed sports wagering. The company argues that such a classification and the associated new taxes and licensing fees are overly burdensome and that the Commodity Futures Trading Commission (CFTC) holds exclusive regulatory authority over its operations.
Illinois recently passed a law that would impose a 1.75 percent tax on the first $5 million in sports wagers per fiscal year, increasing to 3.5 percent thereafter, on prediction markets. Additionally, obtaining a state license would cost Kalshi $15 million for the first four years, followed by $1 million annually. Kalshi, valued at $22 billion, deems these requirements "costly and burdensome."
The company contends that states like Illinois are overstepping their authority by regulating prediction markets as sports wagering operators. Kalshi asserts that its "event contracts" are financial tools used for hedging risks, permissible under CFTC regulation, and not akin to traditional sports bets where traders wager against a "house." The lawsuit seeks a court order clarifying the CFTC's exclusive jurisdiction and a preliminary injunction to halt Illinois's enforcement actions.
States, however, largely disagree with Kalshi's distinction, arguing that the outcomes for bettors are binary and do not serve the traditional purposes of derivatives. Illinois AG Raoul, along with officials from 40 other states and the District of Columbia, previously wrote to the CFTC chair, stating the federal agency "lacks exclusive jurisdiction" and that any distinction between sportsbook bets and prediction-market bets is "illusory."