Prediction market operator Kalshi has filed a federal lawsuit against Illinois in an effort to prevent the state from enforcing new licensing requirements and taxes on sports-related event contracts, deepening the legal battle over the regulation of prediction markets in the United States.
The complaint, filed in the US District Court for the Northern District of Illinois, challenges amendments to the Illinois Sports Wagering Act contained within Senate Bill 3019. From July 1, the legislation requires prediction market operators to obtain a state sports wagering license and pay a transaction tax of 1.75% on the first five million sports event contracts each fiscal year, rising to 3.5% thereafter.
Illinois has argued that operators including Kalshi offer products that are functionally equivalent to online sports betting, placing them in direct competition with licensed sportsbooks such as DraftKings and FanDuel while operating outside the state's regulatory framework.
The legislation also subjects operators to geolocation requirements and licensing fees, including an initial $15m license valid for four years.
Kalshi disputes that interpretation, maintaining that its products are federally regulated event contracts rather than gambling wagers.
In its complaint, the operator states: "This action challenges the State of Illinois's clear violation of the Supremacy Clause with respect to the regulation of event contracts."
The company also argues that complying with Illinois' requirement to limit participation to individuals physically located within the state would place it in conflict with CFTC rules requiring federally regulated contract markets to provide nationwide access.
The case forms part of a broader jurisdictional dispute that has intensified throughout 2026. Earlier this year, the CFTC sued Illinois, Arizona and Connecticut, arguing that states cannot interfere with federally regulated prediction markets.
Meanwhile, several state attorneys general and gaming regulators have continued to pursue enforcement actions against Kalshi and other operators, including Polymarket, asserting that sports event contracts constitute unlicensed gambling under state law.
Kalshi, which was valued at approximately $22bn following its latest funding round, has rapidly expanded its range of sports, political and entertainment event contracts.
As more states move to regulate prediction markets alongside traditional sportsbooks, the outcome of the Illinois litigation could help define the regulatory boundary between federal derivatives markets and state gambling oversight.
The Illinois lawsuit follows Kalshi's efforts to overturn restrictions in Brazil after authorities blocked access to prediction market platforms earlier this year. The operator said it intended to continue engaging with regulators despite the restrictions.
The CFTC has argued in court filings that sports event contracts traded on federally regulated exchanges are more closely aligned with commodity futures than traditional sports betting
