The motion that everyone and their dog plus the fleas on those dogs knew was coming dropped Tuesday, and while the petitioners pretty much had to make the move, it won’t change the overall narrative that has emerged in terms of litigation over the legality of sports event contract trading on prediction market exchanges. Until the United States Supreme Court makes some kind of decision, everything is merely tentative.
Tuesday’s motion was a new filing in the US District Court for the Northern District of Illinois in USA v. Illinois, in which the US Commodity Futures Trading Commission and the Department of Justice asked the court to block the implementation of Illinois’ statute bearing down on exchanges. The law essentially forced the plaintiffs’ hand in this development, but the real resolution for this litigation will come out of Washington, D.C., not Chicago.
Lawsuit over prediction markets in Illinois moves forward
On Tuesday, the Commodity Futures Trading Commission (CFTC) and the Department of Justice (DOJ) filed their motion for a preliminary injunction with the court, joined by the Coalition for Fairer Markets as a potential intervenor. The Coalition for Fairer Markets is a trade group for exchanges such as OG Predicts and Polymarket.
This motion is the continuation of a lawsuit that the CFTC and DOJ initiated against Illinois in April. At the time, it was a response to enforcement actions by the Illinois Gaming Board (IGB) against exchange operators.
The motion signals a shift in that approach, though, as much of the content focuses on a law that Illinois passed with its latest budget in June. That statute requires exchange operators to obtain licensure from the IGB in order to offer sports event contracts to Illinoisans.
The law also imposes a 50% tax on revenue from such trading activity. As a result, the plaintiffs in USA v. Illinois have asked the federal court in Chicago to enjoin Illinois officials from enforcing the statute and taking other actions against exchanges as the case takes its course.
Barring the court granting that relief, exchange operators will face decisions to either comply with the Illinois law or stop offering sports event contract trading there. That’s why the presentation of this request for a preliminary injunction was essentially a foregone conclusion as soon as Illinois finalized the statute in question.
Whether the district court grants the request or not, an appeal to the US Seventh Circuit Court is almost just as certain. However, it’s all just posturing that could be undone by the US Supreme Court quickly.
Action in Washington, D.C., already on the horizon
The dispute over state sovereignty and prediction market regulation has already produced one filing at the US Supreme Court. New Jersey has been granted an extension of time to file its petition for the court to review the decision on a preliminary injunction against itself out of the Third Circuit Court of Appeals.
That trial has been on hold since May pending New Jersey’s appeal. The Third Circuit upheld the district court’s decision to grant Kalshi the requested relief in April.
In much the same fashion in Illinois, New Jersey’s gambling regulators had taken action against Kalshi on the basis that sports event contract trading violated the state’s gaming laws in their eyes.
If New Jersey meets the Aug. 4 deadline, the first choice that Supreme Court justices will face is whether to take up the appeal or not. That decision alone, apart from potential subsequent rulings, will have a national impact.
How Supreme Court decisions in New Jersey case could impact Illinois affairs
As the highest court in the land, all roads ultimately lead to First Street NE in Washington, D.C. That’s if the court will hear the petition, though.
If the Supreme Court refuses to hear New Jersey’s appeal, that makes the Third Circuit’s decision on the preliminary injunction in Kalshi v. Flaherty stands as the final word on that matter. It also creates a much more difficult road for other state governments who face similar injunctions to seek a reversal of those decisions from the Supreme Court.
Should Illinois and other states fall short in arguing against injunctive relief at the district and circuit court levels, it would have to substantiate how the issues at hand are significantly different than the question that New Jersey submitted to warrant new consideration. There simply probably isn’t enough separation between the cases to afford that much daylight on the pertinent questions.
Should the Supreme Court take up the appeal in Kalshi v. Flaherty, then the possibility of the Supreme Court overturning the injunction becomes real. That outcome would give states like Illinois a sort of “roadmap” to affecting enforceable restrictions on prediction market trading within their borders.
Even though counsel for the CFTC, DOJ, exchanges, and state government in Illinois are currently focused on the court in Chicago, the proceedings there won’t have as much significance until there is some kind of decision out of the US Supreme Court. Until then, the Northern District of Illinois’ and Seventh Circuit’s rulings will have a temporary effect on prediction market exchanges in the state at best.
