Kalshi is once again heading to court, this time taking on the state of Illinois over a new law that the company says threatens its ability to operate in the state and undermines federal oversight of prediction markets.
This week, the prediction market company filed a legal suit against Illinois Governor JB Pritzker, the state Attorney General Kwame Raoul, among others, stating that the new law would regulate their business inappropriately, since the federal government regulates their operations.
Kalshi believes that there is much at stake. The firm argues that it would be “irreparably harmed” when the law comes into effect next month.”
What is the lawsuit about?
The conflict revolves around Senate Bill 3019, which is a broad budget and revenue bill passed by Pritzker earlier this week. Although the legislation relates to a variety of financial policies, it also brings new rules regarding digital assets companies and prediction markets.
According to the law, prediction market providers will have to obtain a state license in order to function in Illinois. In addition, a 0.2 percent tax rate will be imposed on the transactions involving digital assets and services offered by the companies in the state.
Kalshi claims that Illinois tries to regulate an industry, which is controlled by federal regulators.
The firm runs a federally regulated trading platform where individuals can trade contracts for the future results of the certain events including elections, economic indicators release and sports games. Kalshi is a designated contract market registered at the Commodity Futures Trading Commission (CFTC), which allows it to provide these products throughout the country.
Thus, Kalshi claims that according to the Commodity Exchange Act, the CFTC has exclusive jurisdiction in such matters and states cannot regulate these markets.
“If Kalshi complies with the new state law by ceasing to offer its sports event contracts in Illinois, that would put Kalshi in violation of the CFTC’s uniformity requirements,” the company said in its complaint.
Kalshi also argues that creating state-specific restrictions would require expensive technological changes and operational adjustments that may never be recoverable, even if the company ultimately wins in court.
Kalshi’s case adds to a wider U.S. fight over prediction market regulation
The suit is the latest in a larger battle over who has the authority to regulate prediction markets in the United States.
Federal regulators, however, especially the CFTC, have long maintained that these products are subject to federal commodities law. CFTC officials have repeatedly said the agency has exclusive authority over prediction markets approved by the federal government.
Many states would disagree.
Increasingly, state regulators have said some event contracts, particularly those tied to sporting results, are akin to gambling products and should fall under state gaming laws and consumer protection rules.
That dispute has already produced a number of court cases nationwide.
CFTC has sued nine states, including Illinois, to protect its jurisdiction over prediction markets. A spokesperson for Governor Pritzker said Illinois would continue to fight to protect consumers and enforce its laws in response to one of those lawsuits earlier this year.
Kalshi’s new lawsuit asks the same basic question: who actually controls prediction markets?
The company says Congress intentionally put exchange-traded event contracts under federal regulation to create a uniform national market. Kalshi says letting states set their own rules would create a patchwork system that undermines that framework.
To stop the law from taking effect, Kalshi is asking the court for immediate relief, including a temporary restraining order and preliminary injunction.
The case could become one of the most important legal tests yet for the prediction market industry. With more states scrutinizing these platforms and federal regulators pushing back, the outcome may help determine how prediction markets are regulated across the United States for years to come.
