Kalshi succeeds in its defense as a federal judge halts the state’s attempt to enforce licensing requirements for prediction markets as sports betting.
In early October, U.S. District Judge Martha M. Pacold’s preliminary injunction blocked Illinois from applying state wagering licensing and gambling rules against Kalshi.
This means Kalshi can continue operating as it did before without obtaining additional licensing. For traders, this also suggests they can continue trading on sports events the same way as before.
Background
On April 1, 2025, the State of Illinois issued a cease-and-desist letter to Kalshi through the Illinois Gaming Board. The letter came after the board and state officials argued that
sports prediction markets
such as Kalshi were actually sports betting concealed as sports trading “swaps.”
Despite Kalshi claiming to offer trading swaps, the Illinois regulatory body said the brand operates illegally in the state because it doesn’t have a state sports betting license.
In June 2026, Kalshi sued in federal court, arguing it's already regulated by the Commodity Futures Trading Commission (CFTC). In its statement, Kalshi said that sports trading swaps and sports betting aren’t the same, emphasizing their speculative nature.
October 2026 Ruling
Pacold's ruling turned on how prediction-market trades are structured, as swaps between users, not bets against the house.
The Judge said that “the platforms function almost exactly like traditional sports betting apps, but they’re not considered gambling because users are trading against each other as opposed to playing against the 'house.’” “Because of that, they remain under the purview of the federal Commodity Futures Trading Commission,” she added.
“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,” Pacold declared. “Under the Act and precedent interpreting it, some Illinois law is likely preempted. Plaintiffs are therefore likely to succeed, at least in part.”
As a result, Kalshi is not applying for the state license, and traders are not waiting for this process but continuing to trade as they did, at least for now.
What to Expect in the Near Future
The judge blocked Illinois from categorizing Kalshi as a betting platform, but she said she considered Illinois lawmakers’ points about imposing certain taxes on prediction markets. This involves taking a percentage of the transaction fees that prediction markets charge.
Illinois lawmakers also want prediction market platforms, some of which are on our
list of prediction markets, to block traders under the age of 21. Since prediction markets are speculative, they are available to people aged 18 or older, but Illinois wants to change that. Kalshi's
sports prediction markets
were the specific target of the state's cease-and-desist letter.
As a result, traders can expect more court sessions. If the court rules in Kalshi's favor, it will likely keep operating as it has.
In contrast, Kalshi would have to accept only traders older than 21 and maybe raise fees for leveling purposes. Kalshi could also choose to leave the Illinois market rather than comply.
Advertiser disclosure
Available with Dimers Pro
