Kalshi Wins Preliminary Injunction in Illinois, Sports Contracts May Be Considered Swaps

The prediction market platform Kalshi has won a partial preliminary injunction against the state of Illinois. On October 2, Judge Martha M. Pacold of the U.S. District Court for the Northern District of Illinois ruled that the state's sports betting licensing system and related criminal provisions may be preempted by federal law, and thus cannot be enforced against Kalshi for the time being. The ruling temporarily halts Illinois from requiring Kalshi to hold a state license, which was originally intended to restrict traders to those aged 21 and over and located within the state, as well as limit the sports events that contracts could track. The court did not rule on the new fees for prediction markets established by Illinois. Pacold stated that contracts regarding championship winners may fall under the swaps defined by the Commodity Exchange Act and should be traded on designated contract markets and subject to federal regulation. This judgment contrasts with the Ninth Circuit Court of Appeals' August ruling that related contracts were considered gambling rather than swaps. This marks Kalshi's first victory in federal court since July. The new Illinois budget law stipulates a fee of 1.75% on the first 5 million relevant trades on the exchange, followed by 3.5%, plus a 15% total revenue fee and a per-trade fee of 25 or 50 cents; the court has requested both parties to submit additional comments regarding the fee issue.

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