The prediction market operator Kalshi has initiated legal proceedings against the state of Illinois to prevent new taxation and licensing regulations that would categorize the company as a sports betting provider starting July 1.
This lawsuit, filed in the U.S. District Court for the Northern District of Illinois, represents a significant development in the escalating legal conflict between prediction market services and state gaming authorities across the nation.
Illinois officials contend that Kalshi and comparable platforms are essentially providing sports betting options without adhering to the same regulatory guidelines expected from licensed sportsbooks like DraftKings and FanDuel.
In contrast, Kalshi argues that its products are federally regulated “event contracts” that fall exclusively under the jurisdiction of the Commodity Futures Trading Commission (CFTC) instead of being treated as state-governed sports bets.
“This legal action asserts that the State of Illinois is clearly infringing upon the Supremacy Clause concerning the regulation of event contracts,” the company stated in its complaint.
This conflict arises following Illinois’ approval of a $55.9 billion state budget, which established new sports betting taxes through Senate Bill 3019. This law imposes a 1.75% tax on the first 5 million sports wagers placed annually via prediction markets, escalating to 3.5% for any wagers beyond that number. Additionally, it necessitates that operators like Kalshi acquire a sports betting license in Illinois.
Kalshi criticized the licensing process as “costly and burdensome.” According to Illinois regulations, online sportsbooks must pay a $15 million upfront fee for a four-year license, along with subsequent renewal charges of $1 million.
The company also raised objections to Illinois’ geolocation requirements, which stipulate that licensed operators may only accept bets from users physically present in the state. Kalshi contends that such geographical limitations would contradict federal CFTC mandates, which require regulated contract markets to function on a national scale.
This case is part of a larger nationwide conversation about whether prediction markets should be classified as financial exchanges or gambling products.
Previously, Illinois regulators sent cease-and-desist orders to operators like Kalshi and Polymarket, which led to separate legal action from the CFTC earlier this year. In that case, federal officials argued that sports event contracts are more akin to commodities futures markets than traditional betting mechanisms.
The debate has intensified as prediction markets draw increasing political and financial interest. Kalshi recently achieved a valuation of approximately $22 billion and has positioned itself as one of the leading entities in this sector.
Meanwhile, sports wagering is experiencing rapid growth in Illinois. According to statistics mentioned in the case, residents of Illinois lost nearly $1.5 billion on legal sports betting last year after payouts.
Kalshi is pursuing urgent relief through a temporary restraining order and preliminary injunction to halt the enforcement of the law before it takes effect next week. The office of Illinois Attorney General Kwame Raoul has indicated that they are currently reviewing the complaint.