Illinois Appeals Ruling That Blocks Prediction Market Licensing and Taxes

Illinois’ appeal puts the reach of state gambling rules over federally regulated prediction markets before the Seventh Circuit. A federal injunction now blocks the state from licensing, taxing or prosecuting sports event contracts listed on CFTC-regulated exchanges, giving platforms such as Kalshi and Coinbase room to continue operating in Illinois while the case proceeds.

The injunction removes licensing and tax requirements

Judge Martha Pacold of the Northern District of Illinois formalized her earlier ruling in an injunction covering three state measures: the Sports Wagering Act, Illinois’ criminal gambling statute and an Internet wagering rule issued by the Illinois Gaming Board. The ruling also blocks the budget’s prediction-market fees, which apply only to providers with a state license. Pacold had left that fee question open in her first decision and requested further arguments.

The state’s regulatory effort began with cease-and-desist letters. On April 1, 2025, the Gaming Board sent notices to KalshiEX, Crypto.com and Robinhood, citing the Sports Wagering Act (230 ILCS 45) and criminal code (720 ILCS 5/28-1(a)). Polymarket received a notice on Jan. 27, 2026.

Illinois then enacted a licensing and tax framework in a budget signed by Gov. JB Pritzker on June 16. The package, including SB 3019, classified prediction-market activity as exchange wagering under the Sports Wagering Act and required a Gaming Board license. It also imposed a per-transaction tax that would rise after a licensee exceeded five million exchange wagers.

That tax is now blocked along with the licensing rules. Fiscal 2026 was the first year Illinois applied a per-wager tax to licensed sports wagering. In September, Republican Rep. Travis Weaver introduced House Bill 5811, which would repeal the exchange-wager tax while retaining licensing requirements. Licensed online and mobile sportsbooks face a separate cost structure: an initial four-year license costs $15 million, with each four-year renewal priced at $1 million.

Five related appeals are before the Seventh Circuit

The courts have not settled whether state gambling laws can govern sports contracts on CFTC-regulated exchanges. Pacold’s ruling found that Illinois laws conflicted with federal law because they determine “what can be sold, as well as where it can be sold and to whom.” Before her decision in early October, Kalshi had lost 16 consecutive federal court rulings on the issue.

The CFTC sued Arizona, Connecticut and Illinois on April 2, 2026, challenging state actions against federally registered designated contract markets. Chairman Michael Selig said the agency would defend market participants against “overzealous state regulators.”

The Seventh Circuit now has five prediction-market appeals involving sports event contracts, according to attorney Daniel Wallach. The Illinois case joins disputes involving Wisconsin, Kalshi, Coinbase, the United States and the Ho-Chunk Nation. On July 29, Judge William Griesbach ruled against the CFTC in the Wisconsin case, which the agency also appealed to the Chicago-based court.

Illinois is asking the Seventh Circuit to reverse and vacate Pacold’s injunction. For now, operators can list sports contracts in the state without the blocked license and tax regime, while Illinois loses both a source of potential revenue and an enforcement route. Lawmakers had excluded the tax revenue from budget projections in anticipation of a legal challenge. The appeals court’s decisions will shape how far states can regulate these exchange-listed contracts.

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