Kalshi has launched a legal challenge against Illinois ahead of the state’s new prediction market regulations, arguing that federal law gives exclusive oversight authority to the Commodity Futures Trading Commission (CFTC) and prevents Illinois from imposing its own licensing and tax requirements.

The company filed its lawsuit Tuesday in the U.S. District Court for the Northern District of Illinois. The case names Governor JB Pritzker, Attorney General Kwame Raoul, officials from the Illinois Gaming Board, and other state representatives as defendants. Kalshi is asking the court to issue a temporary restraining order, a preliminary injunction, and a permanent injunction to stop enforcement of the legislation before it takes effect on July 1.

New Illinois Requirements Face Court Challenge

At the center of the dispute is Senate Bill 3019, a measure approved by Illinois lawmakers and signed by Pritzker as part of the state’s budget package. The law introduces a framework that treats sports-related exchange wagers as legal, state-regulated sports betting. It also requires prediction market operators registered as designated contract markets (DCMs) with the CFTC to obtain an Illinois license and pay associated fees.

The legislation includes additional financial obligations for operators. According to court filings, Illinois plans to impose a transaction tax on sports event contract trading of 1.75% per trade, with the rate increasing to 3.5% after the first five million sports trades annually. Separate reporting on the legislation also noted that the broader measure creates a 0.2% privilege tax on certain digital asset transactions.

Kalshi argues that these provisions conflict with federal law because its event contracts are traded through a CFTC-regulated designated contract market. The company maintains that the Commodity Exchange Act grants the federal agency sole authority over such contracts.

In its complaint (pdf), Kalshi stated that Illinois has committed a “clear violation of the Supremacy Clause with respect to the regulation of event contracts”.

The company further argued: “As a result, on July 1, 2026, when the relevant provisions of SB 3019 go into effect, Kalshi will be subject to criminal penalties in Illinois unless it either ceases to offer Illinois residents sports event contracts that are perfectly lawful in the eyes of Kalshi’s exclusive federal regulator or pays Illinois millions of dollars and submits to the State’s regulatory regime.”

The filing continued: “Worse still, either option will put Kalshi in direct violation of federal law because the CFTC requires that all DCMs offer nationwide, uniform access to their markets.”

Company Says State and Federal Rules Conflict

Kalshi claims the Illinois law creates a situation in which compliance with one set of regulations could trigger violations of another. According to the company, removing sports event contracts from Illinois residents would conflict with federal requirements governing uniform access to CFTC-regulated markets.

The lawsuit states that the company would face significant operational expenses if it attempted to restrict Illinois users through geolocation controls and other technological measures. Kalshi argues those costs could not be recovered even if it eventually succeeds in court.

The complaint says the company would suffer irreparable harm if the law is allowed to take effect without judicial intervention.

“If Kalshi complies with the new state law by ceasing to offer its sports event contracts in Illinois, that would put Kalshi in violation of the CFTC’s uniformity requirements, harm Kalshi’s commercial interests, and require the company to implement complex and expensive technological solutions to limit access in Illinois — incurring costs that would not be recoverable when Kalshi ultimately prevails in the action,” the company stated according to SBC Americas.

Broader Regulatory Dispute Continues

The lawsuit represents the latest development in an ongoing disagreement over whether prediction markets should be regulated as federally supervised derivatives products or as gambling activity subject to state oversight.

Illinois officials have previously sought to halt Kalshi’s sports event contract offerings. The latest legal battle follows a cease-and-desist letter sent by Attorney General Raoul more than a year ago.

Kalshi’s case also parallels action taken by the CFTC itself. In April, the federal regulator sued Illinois, along with Arizona and Connecticut, accusing the states of pursuing “aggressive and overzealous” efforts against prediction market operators. The CFTC later amended its complaint to challenge Illinois’ new legislation and related enforcement actions, while seeking its own preliminary injunction.

Illinois is one of nine states currently facing CFTC lawsuits related to prediction markets. Kalshi is also involved in more than a dozen legal disputes across the country, either as a plaintiff or defendant.

The debate has expanded beyond Illinois. Several states have considered or advanced proposals to regulate and tax prediction market operators, including Kentucky, New Jersey, Ohio, and Pennsylvania.

On the same day Kalshi filed its Illinois lawsuit, the CFTC sued Kentucky over a planned 14.25% excise tax on prediction market trading. Kalshi had already challenged Kentucky’s proposal in court, joining Polymarket and Crypto.com in that legal effort.

As the July 1 implementation date approaches in Illinois, the courts will now determine whether the state can enforce its new licensing and tax framework while the broader jurisdictional dispute continues.