In a notable legal triumph for prediction markets, a federal judge in Illinois has ruled in favor of Kalshi, a platform for sports event contracts, indicating that these contracts may be classified as swaps under the Commodity Exchange Act (CEA). This ruling suggests that certain Illinois gambling laws could be overridden by federal regulations.
The decision coincided with Ohio's regulatory actions, where officials issued cease-and-desist orders to ten companies, reaffirming their stance after a recent Sixth Circuit ruling that favored state regulations over federal law.
U.S. District Judge Martha Pacold found that Kalshi’s contracts are likely to be considered “swaps” and granted preliminary injunctions, stating that Illinois laws governing these contracts might conflict with federal statutes. She emphasized that the CEA’s definition encompasses not only the occurrence of events but also the extent of their outcomes.
Judge Pacold also addressed the issue of “impartial access,” ruling that state-imposed age and geographic restrictions on Kalshi could conflict with CFTC regulations. While she acknowledged Illinois’ ability to impose fees on federally regulated activities, she left the question of whether these fees create a conflict open for further discussion.
This ruling stands in stark contrast to recent decisions in other jurisdictions, particularly the Sixth Circuit, which upheld Ohio's regulations against similar contracts. Additionally, it creates a division within the Seventh Circuit, as a federal judge in Wisconsin ruled against the CFTC in favor of state regulators.
Meanwhile, in Ohio, the Casino Control Commission has taken action against companies like Underdog and Gemini, alleging they are involved in unlicensed sports betting. These companies have been given 14 days to comply with the order to cease offering sports event contracts to Ohio residents.
In a related development, California gubernatorial candidate Xavier Becerra has returned campaign contributions from Kalshi and Underdog, indicating a potential distancing from these entities amid ongoing scrutiny.