Illinois Appeals Block on Prediction Market Tax and Licensing Law

Illinois officials have appealed a federal judge’s preliminary injunction that blocked the state from enforcing its prediction markets licensing and taxation law. The injunction, issued on October 30, prevents the state from applying its gaming laws to swaps, including sports event contracts, offered by Commodity Futures Trading Commission-registered companies.

What Happened

A new federal court preliminary injunction, issued by Judge Martha Pacold on Friday, October 30, prohibits Illinois from enforcing its prediction markets licensing and tax law, according to SBC Americas. This decision bars Illinois officials, including Attorney General Kwame Raoul, from enforcing state gaming laws, such as the Sports Wagering Act, illegal gambling statutes, and ‘Internet Wagering’ provisions, on swaps and sports event contracts offered by Commodity Futures Trading Commission (CFTC)-registered companies like Kalshi (SBC Americas).

The injunction resulted from a combination of three separate Illinois prediction markets cases: Coinbase v. Raoul et al., The CFTC, the Coalition for Fair Markets, and OG.com v. the state of Illinois et al., and Kalshi v. Raoul et al. The Coalition for Fair Markets includes members such as Kalshi, Polymarket, and Crypto.com (SBC Americas). The prohibition specifically covers “licensing requirements, associated fees, taxes, and related criminal provisions, or by engaging in any criminal or civil enforcement actions, subpoena process, or other compulsory investigative process,” as detailed by Judge Pacold (SBC Americas).

Illinois’s 2026 approved budget package amended the state’s Sports Wagering Act to classify sports “exchange wagers” as state-regulated sports betting. This measure required CFTC-registered exchanges to pay significant fees for state licenses and introduced a per-wager tax starting at 1.75% on all sports event contract trading. Kalshi filed a lawsuit against Illinois in June, arguing that the law violated the Supremacy Clause regarding the regulation of event contracts (SBC Americas). The CFTC had previously sued Illinois in April, alleging “aggressive and overzealous” attempts to restrict prediction markets through actions like cease-and-desist orders, later amending its lawsuit to include complaints against the new law (SBC Americas). Coinbase similarly amended its December 2025 lawsuit against the state.

Key Details

• On October 30, Judge Martha Pacold issued a preliminary injunction, blocking Illinois from enforcing its prediction markets licensing and taxation law (SBC Americas).
• The injunction prevents Illinois officials from enforcing state gaming laws, including the Sports Wagering Act, on swaps and sports event contracts offered by CFTC-registered entities (SBC Americas).
• Illinois’s 2026 budget package sought to define sports “exchange wagers” as state-regulated sports betting, requiring CFTC-registered exchanges to pay licensing fees and a per-wager tax starting at 1.75% (SBC Americas).
• Attorney General Kwame Raoul, Governor JB Pritzker, and the Illinois Gaming Board immediately appealed the preliminary injunction order to the U.S. Court of Appeals for the Seventh Circuit (SBC Americas).

Why It Matters

This legal challenge highlights the ongoing tension between state regulatory efforts and federal oversight in the emerging prediction markets sector. Judge Pacold’s decision to grant the preliminary injunction was based on her assessment that sports event contracts are swaps, whose underlying outcomes are “associated with a potential financial, economic, or commercial consequence” (SBC Americas). She also indicated that certain Illinois state laws are likely preempted by the Commodity Exchange Act (CEA) and that the prediction market plaintiffs demonstrated a likelihood of success on the merits, facing “irreparable harm” without an injunction (SBC Americas).

The appeal by Illinois officials to the Seventh Circuit positions these cases alongside existing prediction market appeals from Wisconsin. In Wisconsin, the CFTC’s request for a preliminary injunction was denied, with that court determining the commission had not shown sports-event contracts qualified as swaps under the CEA (SBC Americas). Separately, the Seventh Circuit granted Kalshi’s request to appeal a May decision allowing the Indian Gaming Regulatory Act (IGRA) claims by the Ho-Chunk Nation against the company to proceed, according to SBC Americas. These intertwined appeals underscore the evolving legal landscape for prediction markets and the jurisdictional complexities between state and federal authorities.

What’s Next

The appeal by Attorney General Kwame Raoul, Governor JB Pritzker, and the Illinois Gaming Board to the U.S. Court of Appeals for the Seventh Circuit requests that the district court’s preliminary injunction order be reversed and vacated (SBC Americas). The Illinois cases will join two separate prediction markets appeals already pending in the Seventh Circuit from Wisconsin (SBC Americas).