Federal Judge Finds Illinois Law Likely Preempted for Kalshi's Sports Contracts

Kalshi just got a major win in Illinois. On October 2, 2026, Judge Martha M. Pacold of the Northern District of Illinois issued a 28-page opinion on requests for preliminary injunctions against the state. The motions came from Coinbase, the federal government, and Kalshi. She granted them in part and continued them in part.

The reasoning matters more than the label. The judge found that Kalshi's core sports contracts are likely "swaps" and that much of Illinois law likely conflicts with federal law.

This ruling lands just after the Ninth Circuit's opposite result in Nevada. Our earlier coverage of that fight is in our Ninth Circuit rehearing article.

What the Case Is About

Three related cases were handled together:

• Coinbase Financial Markets v. Raoul (No. 1:25-cv-15406)

• United States v. Illinois (CFTC docket, No. 1:26-cv-03659)

• KalshiEX LLC v. Raoul (No. 1:26-cv-07363)

Kwame Raoul, the Illinois Attorney General, is a defendant. The Coalition for Fair Markets and North American Derivatives Exchange (doing business as OG) joined as intervenor plaintiffs.

All sides wanted similar relief: a block on Illinois enforcement against sports event contracts.

How the Judge Explained Kalshi

The opinion starts with a plain description of how Kalshi works. Users put money behind predictions. The court gives an example from this summer, a contract on whether LeBron James would sign with the Miami Heat. It cost about 10 cents. When he signed with the Philadelphia 76ers instead, it settled at $0.00. People who bet on the 76ers got $1.00.

The court stressed one point. The market sets the price, not Kalshi. A 35-cent contract means traders collectively see a 35% chance. That is different from a casino, where the house sets the odds. Users can also trade contracts before they settle, so they can, in the court's words, bet on bets.

Illinois Sent a Cease-and-Desist

Shortly after Kalshi began listing sports contracts, Illinois sent a cease-and-desist letter. The state said Kalshi violated the Illinois Sports Wagering Act. It pointed to 230 ILCS 45/25-10, which defines sports wagering, and 230 ILCS 45/25-20, which requires a license for anyone engaged in related activity.

Kalshi, Coinbase, and the federal government said those state rules cannot reach contracts traded on a federally regulated exchange.

The Core Holding: Likely Preempted

The court's conclusion is blunt. Under precedent, the state rules are likely preempted if they control a designated contract market's sale of swaps. The judge found the plaintiffs showed three things:

1. Kalshi is a designated contract market.

2. Its core sports contracts are swaps.

3. Illinois is likely trying to control Kalshi's sale of those swaps.

From there, the court said much of Illinois law likely conflicts with the Commodity Exchange Act. That gives the plaintiffs a likelihood of success on the merits.

That is only one of four preliminary-injunction factors. The judge said she would turn next to the other three. Her order is not a final ruling on the case.

The Cubs Example: What Counts as an "Event"?

One of the most useful parts of the opinion is a simple table about baseball. It compares two types of contracts:

• A title contract: "Will the Cubs win the game against the Reds on August 28, 2026?"

• A record contract: "Will the Cubs' season-long record be 77-58 on August 29, 2026?"

The court's reading treats both as swaps. A single win is itself an event, and so is a season record.

Illinois argued for a narrower reading. In the state's view, the game is the event, and the win is just the result. That would mean the title contract is not a swap. The state agreed the record contract is a swap.

This distinction was central in the Ninth Circuit too, where the panel separated "event" from "outcome." Here, the Illinois judge landed on the other side.

Why Sports Bets Can Look Like Swaps

The opinion also makes a financial argument. At that level, the court said, sports bets can resemble credit default swaps.

Plenty of businesses are exposed to how a game or series turns out:

• Broadcasters earn more from longer series. The court cited a 2001 estimate that the gap between a four-game and seven-game NBA series could cost NBC $25 million to $35 million in ad revenue.

• Arenas and concession companies often get a share of sales, so their income rises with the number of games.

• Sponsors see better returns when their athletes perform well.

The point is that outcomes carry real economic risk. Contracts that hedge or transfer that risk look like financial products, not just wagers.

The CFTC Factor

The judge also rejected a key Illinois argument. The state said Kalshi's contracts are illegally listed under CFTC Rule 40.11(a)(1), so no federal protection applies.

She gave two answers. First, that would let Illinois law in effect control what the CFTC can allow on designated contract markets. In her view, that means non-uniform regulation, which precedent does not allow.

Second, she pointed to the CFTC's broad discretion over what trades on these markets. The agency has never ruled that Kalshi's contracts are impermissible gaming contracts. It has never ordered Kalshi to remove them. And it supports Kalshi in this lawsuit.

She called it odd to adopt a theory that boils down to saying the CFTC and Illinois have consistent regulations. Without a reason to think otherwise, she found Illinois's licensing laws likely preempted.

A footnote adds another possible conflict. Illinois law might also clash with the rule requiring designated contract markets to give impartial access to their markets and services, 17 CFR § 38.151(b).

Ninth Circuit vs. Illinois: Same Rule, Different Result

The two rulings are hard to square, and Rule 40.11 sits at the center of both.

• Ninth Circuit (Nevada): Rule 40.11(a) already bars Kalshi from listing the contracts, and the court would not accept Kalshi's reading until the rule is amended.

• Northern District of Illinois: Even if the contracts are impermissibly listed, the CFTC decides that, not the state.

That tension raises the odds of Supreme Court review.

What to Watch Next

1. The scope of relief. The order is granted in part and continued in part. Read the full opinion to see exactly what Illinois can and cannot enforce for now.

2. An Illinois appeal. The state may take this to the Seventh Circuit.

3. The CFTC's Rule 40.11 revision. A rewrite could change both cases.

4. Supreme Court petitions. Several parties are already asking for review of the split.

In Short

The Illinois ruling gives Kalshi, Coinbase, and the CFTC a strong early win. The judge sees sports event contracts as likely swaps and sees state licensing rules as likely preempted. Whether it holds depends on the appeals ahead.