Federal Judge Grants Kalshi and Coinbase Partial Injunctions Against Illinois

Illinois’ licensing rules face a preliminary injunction, but its trading fees remain under review. The ruling conflicts with a Wisconsin decision now on appeal.

A federal judge on Friday granted preliminary-injunction requests in part, blocking Illinois from applying its sports-wagering licensing requirements and related criminal provisions to the Kalshi-listed contracts at issue. U.S. District Judge Martha M. Pacold found that those contracts likely fall under federal commodities law and that Illinois’ rules conflict with that law.

The Oct. 2 ruling resolves requests from Coinbase, Kalshi, the United States and the Commodity Futures Trading Commission, alongside intervening plaintiffs. Pacold granted the requests in part and kept the challenge to Illinois’ wagering fees, including the new prediction-market transaction fees, pending for further briefing.

The decision puts federal district courts in Illinois and Wisconsin on opposing sides of the dispute over state authority to regulate sports-event contracts. A Wisconsin judge denied the CFTC similar relief in July, and that case is now before the Seventh Circuit Court of Appeals.

Gaming attorney Daniel Wallach flagged the ruling on X on Friday, pointing to the disagreement between courts within the same federal appeals circuit.

Pacold finds the sports contracts at issue likely fall under federal law

Pacold focused on contracts tied to the winner of a title game, using a contract on whether the Chicago Cubs would win the 2026 World Series as an example. The parties had centered their arguments on that type of contract, and she tailored the relief accordingly.

The judge found that championship outcomes can have concrete financial consequences for broadcasters, arena operators, concession businesses and sponsors. That connection, she concluded, likely brings the contracts within the Commodity Exchange Act’s definition of swaps, financial derivatives under the CFTC’s exclusive jurisdiction when traded on federally designated exchanges. “Swaps are swaps whether they are used to gamble,” Pacold wrote.

Illinois argued that sports contracts lack the economic connection Congress intended when it expanded federal oversight of swaps after the financial crisis. The state also said gambling regulation protects consumers, particularly young people, from addictive products.

Pacold found that Illinois’ licensing rules would control which contracts the exchanges could offer and who could trade them. Those requirements, backed by criminal penalties, would impose conflicting rules on federally regulated markets, she wrote.

Federal exchange registration alone was not enough for protection from state law, however. Pacold required the contracts themselves to qualify under the federal statute. Pacold pointed to Coinbase’s concession at oral argument that a contract on the color of sports drink dumped on a coach after a Chicago Bears win lacks the concrete financial consequences needed to qualify as a swap.

Illinois’ cease-and-desist letter led to three lawsuits

The dispute began after the Illinois Gaming Board sent Kalshi a cease-and-desist letter on April 1, 2025. The board accused the exchange of unlicensed sports wagering and directed Kalshi and anyone affiliated with its operations to stop, warning of civil or criminal penalties.

Coinbase sued after announcing a partnership with Kalshi in December 2025. The arrangement allowed Coinbase customers to trade Kalshi-listed contracts using cryptocurrency held through Coinbase. Pacold heard arguments on Coinbase’s injunction request in February 2026.

The federal government entered the dispute on April 2, when the CFTC announced lawsuits against Illinois, Arizona and Connecticut. The agency argued that state restrictions interfered with the national system Congress established for derivatives markets. Kalshi later brought its own Illinois case, and Pacold addressed the three cases together.

Illinois added state taxes in June as part of its fiscal 2027 budget. According to the opinion, the law imposes a 1.75% fee on an exchange’s first five million sports-related exchange wagers in a fiscal year and 3.5% on those beyond that threshold.

Pacold reserved a decision on the fees. “Regulatory uniformity, however, does not necessarily entail uniformity in cost,” she wrote. She said a state-imposed cost might have a different legal effect from licensing rules that control trading, although a fee large enough to effectively restrict market operations could still conflict with federal law. The challenge also involves existing gross-receipts and per-wager charges.

Wisconsin appeal brings the same dispute to the Seventh Circuit

In an order filed July 29, U.S. District Judge William C. Griesbach denied the CFTC’s request to block Wisconsin’s enforcement of its gambling laws against sports-event contract providers. He found the agency had not shown that the contracts likely qualified as swaps or that federal law displaced Wisconsin’s gambling restrictions. He also found that the CFTC had not demonstrated irreparable harm or that the balance of equities favored an injunction.

Griesbach also concluded that federal permission to offer contracts did not guarantee a right to offer them despite state prohibitions. Pacold reached a different conclusion about Illinois’ licensing rules, finding that they likely interfered with the uniform federal regulation of swaps.

The Wisconsin court administratively closed its case on Sept. 9 while appeals proceed in the Seventh Circuit. In Illinois, Pacold directed the parties to submit further arguments on the transaction fees before she decides the remaining portion of their injunction requests.