Federal judge backs Kalshi against Illinois interpretation of prediction market rules

• Illinois federal judge temporarily shields Kalshi from enforcement of state gaming laws against the company
• The judge argues that while Kalshi and Polymarket offer betting-like products, they are most likely covered by the remit of federal regulation
• This decision represents the latest ruling on prediction markets, with judges across the U.S. landing on both sides of the argument

A federal judge has temporarily blocked Illinois from enforcing parts of its gambling laws against Kalshi'ssports event contracts, including licensing rules that would have limited which contracts can be offered and restricted trading to people aged 21 and over.

On Friday, Judge Martha Pacold of the Chicago federal district court handed an injunction that prohibits the state from enforcing these rules.

Illinois judge lands a blow to state efforts to turf out prediction markets

Judge Pacold wrote that although event contracts offered by platforms such as Kalshi and Polymarket do resemble betting and gaming, they are most likely within the remit of federal regulation, suggesting they may be swaps. Kalshi founder Luana Lopes Lara said that the decision was "beautiful."

The decision is also the latest to add division to the interpretation of event contracts after a judge in Utah sided with the state against the sector. Illinois has even banned state employees from using prediction markets over concerns of using insider information for unfair gain.

The state pushed for a new tax in its latest budget that would have seen a percentage of the fees charged by prediction companies on event contracts paid to the state as tax, but expecting legal pushback, Illinois did not factor such contributions into the bill.

Lawmakers hoped to prohibit event contracts on sports as well as restrict the platforms to individuals over the age of 21.

Judge Pacold has decided against the age restriction and contract restrictions, but has not rendered an opinion on the tax on fees.

"Many of the financial instruments at issue are likely swaps as defined by the Commodity Exchange Act — they just happen to be swaps that people find entertaining and fun. Under the Act and precedent interpreting it, some Illinois law is likely preempted. Plaintiffs are therefore likely to succeed — at least in part," Pacold wrote.

This is not the only setback that states looking to push back against the prediction market have faced. Despite spreading regulatory action and ensuing court battles, prediction markets are still around.

Minnesota was set to enforce a full ban on prediction markets, but that was stayed by a judge in July.

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