Judge blocks Illinois from acting against Kalshi contracts
The decision contrasts with recent rulings in Ohio and Tennessee, where appeals courts found states could enforce their gambling laws against Kalshi.
Key Takeaways
- Judge Martha Pacold has granted Kalshi a partial preliminary injunction, blocking Illinois from enforcing new restrictions on its sports event contracts.
- Pacold found the contracts are likely swaps under the Commodity Exchange Act, giving the CFTC likely exclusive authority over them and limiting Illinois’ ability to impose its own rules.
- The court rejected the idea that sports-linked contracts automatically fall outside federal commodities regulation because they resemble gambling.
- The injunction doesn’t cover Illinois’ transaction fee on prediction markets, which Pacold said raises a separate legal question.
U.S.- A federal judge has temporarily prevented Illinois from enforcing several new restrictions against Kalshi. Judge Martha Pacold determined that Kalshi’s sports contracts are presumably covered by federal commodities law, while declining to stop a separate state fee imposed on prediction market transactions.
Pacold found that the contracts are likely to be considered as swaps under the Commodity Exchange Act (CEA). As Kalshi operates as a federally designated contract market, the judge concluded that the CEA likely gives the Commodity Futures Trading Commission (CFTC) exclusive authority over these products, limiting Illinois’ ability to impose its own rules.
The court rejected the idea that contracts linked to sporting events automatically fall outside federal commodities regulation because they resemble gambling.
Tax remains a separate issue
The injunction does not cover Illinois’ introduction of a transaction fee for prediction markets. The state introduced a 1.75 per cent fee on the first five million exchange wagers during a fiscal year and 3.5 per cent on additional wagers.
Pacold said the fee raises a different legal question from direct regulation of Kalshi’s contracts. While a tax could potentially interfere with a federally regulated market if it becomes sufficiently restrictive, the court said there was not enough evidence at this stage to determine that the Illinois fee interferes with federal law.
Kalshi faces challenges from state authorities across the US over its sports event contracts. Federal courts reached different conclusions in cases involving Ohio and Tennessee, ruling that they could enforce their gambling laws against Kalshi’s sports event contracts and rejecting the company’s argument that the products fall exclusively under federal oversight.
Meanwhile, the U.S. Court of Appeals for the Ninth Circuit ruled in favour of the Blue Lake Rancheria Indians and the Chicken Ranch Rancheria of the Me-Wuk Indians in their legal dispute with Kalshi and Robinhood, stating that the tribes had valid grounds to argue that the company’s sports-event contracts could violate their rights under federal law when offered on tribal lands.
Frequently asked questions (FAQs)
- Why did a judge block Illinois from regulating Kalshi’s contracts? Judge Martha Pacold found Kalshi’s sports contracts are likely swaps under the Commodity Exchange Act, giving the CFTC likely exclusive authority over them and limiting Illinois’ ability to impose its own participation and trading rules.
- Can Illinois tax Kalshi? The recent injunction doesn’t cover Illinois’ transaction fee, 1.75 per cent on the first five million exchange wagers in a fiscal year and 3.5 per cent above that, which Pacold said raises a separate legal question not yet resolved.
