A federal judge in Illinois granted Kalshi and Coinbase Financial Markets a partial preliminary injunction on October 2, 2026, blocking the state from enforcing several wagering and licensing provisions against Kalshi’s sports event contracts. Judge Martha M. Pacold of the U.S. District Court for the Northern District of Illinois ruled that the contracts are likely swaps under the Commodity Exchange Act and that federal law likely preempts the challenged state provisions. The court declined to resolve a separate challenge to Illinois’ fee structure, which imposes a 1.75% charge on the first five million exchange wagers, rising to 3.5%. The litigation continues.
A federal judge has granted Kalshi and Coinbase Financial Markets a partial preliminary injunction in their dispute with Illinois over sports event contracts. The court found that the contracts are likely swaps under the federal Commodity Exchange Act.
On October 2, 2026, Judge Martha M. Pacold of the U.S. District Court for the Northern District of Illinois blocked the state from enforcing several wagering and licensing provisions. The order applies to Kalshi’s sports contracts and affiliated entities. The court found that the contracts are likely swaps under the CEA and that federal law likely preempts the specific state provisions at issue.
The order resolves preliminary injunction motions in consolidated cases involving Coinbase Financial Markets, KalshiEX, the United States and the Commodity Futures Trading Commission, and the State of Illinois and Attorney General Kwame Raoul.
The court wrote that many of the financial instruments at issue are likely swaps as defined by the Commodity Exchange Act. The court added that they just happen to be swaps that people find entertaining and fun.
What the Court Decided
The ruling turned on a central question. Are Kalshi’s sports event contracts wagers subject to state gambling laws, or swaps subject to federal regulation under the CEA?
The court preliminarily agreed that Kalshi’s sports event contracts likely qualify as swaps under 7 U.S.C. § 1a(47). That provision includes contracts dependent on the occurrence, nonoccurrence or extent of an event or contingency.
Illinois had argued for a narrower interpretation of the provision. The court rejected that reading. It found that the statutory definition does not distinguish between an event and its outcome in the manner Illinois proposed.
Based on that finding, the judge concluded that several Illinois requirements were likely preempted by federal law. These included provisions concerning state licensing, a 21-and-over age requirement, restrictions on access based on physical location, limits on the sporting events that could underlie contracts and a related criminal-gambling provision.
The court found that these provisions regulate the market itself and create regulatory requirements that conflict with the federal framework. The injunction also covers Kalshi’s affiliated entities, including Coinbase Financial Markets.
The court did not grant the plaintiffs all of the relief they sought. It declined to resolve the challenge to Illinois’ fee structure at this stage. The state imposes a 1.75% charge on the first five million exchange wagers, rising to 3.5%, in addition to existing sports-wagering taxes. The judge ordered further briefing on whether the fees would force operational changes that could support a preemption claim.
Preliminary Ruling Leaves Broader Dispute Open
The decision is a preliminary injunction rather than a final judgment on the merits. The court determined that the plaintiffs were likely to succeed on their claims and that the other requirements for preliminary relief were satisfied. The underlying litigation continues.
The Illinois decision also does not resolve the broader dispute between prediction-market operators and state gambling regulators.
Courts in other jurisdictions have reached different conclusions concerning sports event contracts. On September 25, 2026, the U.S. Court of Appeals for the Sixth Circuit found that Kalshi had not shown that its sports event contracts qualify as swaps and rejected its preemption arguments in cases involving Ohio and Tennessee. Kalshi has continued to argue that federal law gives the CFTC jurisdiction over its contracts.
The differing rulings leave the interaction between federal commodities law and state gambling laws unsettled. The Illinois decision applies to the litigation before Judge Pacold. It does not establish a nationwide final rule.
Why Coinbase is Involved
The ruling also has implications for Coinbase because of its distribution relationship with Kalshi.
Coinbase began offering Kalshi-powered prediction markets to U.S. customers in 2026. Coinbase Financial Markets is a named plaintiff in the Illinois litigation. That makes the court’s protection of Kalshi-affiliated entities relevant to Coinbase’s prediction-market operations.
The CFTC and the United States are parties to the consolidated Illinois litigation in support of the federal-jurisdiction position. The CFTC has separately taken steps concerning prediction markets and event contracts. It has also identified risks associated with certain prediction-market products.
