A federal judge has granted Kalshi and Coinbase Financial Markets a partial preliminary injunction in their dispute with Illinois over sports event contracts, finding that the contracts are likely “swaps” under the federal Commodity Exchange Act (CEA). On October 2, 2026, Judge Martha M. Pacold of the U.S. District Court for the Northern District of Illinois blocked Illinois from enforcing several state wagering and licensing provisions against Kalshi’s sports contracts and affiliated entities. The court found that the contracts are likely swaps under the CEA and that the federal statute likely preempts the specific state provisions at issue.
The order resolves a consolidated set of cases involving Coinbase Financial Markets, KalshiEX, the United States, and the Commodity Futures Trading Commission (CFTC) as intervenors, 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,” adding that they “just happen to be swaps that people find entertaining and fun.”
What the Court Decided
The ruling turned on whether Kalshi’s sports event contracts are wagers subject to state gambling laws or swaps subject to federal regulation under the CEA.
The court preliminarily agreed with the federal interpretation. It found that Kalshi’s sports event contracts likely qualify as swaps under 7 U.S.C. § 1a(47), which 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 interpretation, finding 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, but 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. For example, a Massachusetts judge previously ruled that Kalshi could not continue offering sports-event contracts without complying with state gaming requirements, while 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 therefore applies to the litigation before Judge Pacold and 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, making the court’s protection of Kalshi-affiliated entities relevant to Coinbase’s prediction-market operations.
The CFTC and the United States intervened in the Illinois litigation in support of the federal-jurisdiction position. The CFTC has separately taken steps concerning prediction markets and event contracts, while also identifying risks associated with certain prediction-market products. The agency has, for example, warned about manipulation risks in event-based “mention” markets, adding a regulatory-risk component to its broader approach toward prediction markets.
Prediction Markets Face State-Federal Regulatory Dispute
The legal disputes have emerged as prediction markets have expanded in the United States. The Crypto Times reported that prediction-market trading reached record levels in April 2026, with Kalshi among the leading platforms by trading activity.
State regulators have also challenged prediction-market operators over sports contracts. The Crypto Times previously reported that Wisconsin regulators targeted Coinbase, Kalshi, and Polymarket over alleged illegal betting activity.
The underlying dispute concerns whether federally regulated event contracts can be subject to state gambling restrictions when the contracts relate to sporting events. The Illinois ruling supports the federal-preemption argument in the specific provisions before the court, while rulings elsewhere have taken different approaches.
Why It Matters
The Illinois ruling strengthens Kalshi and Coinbase’s position in their specific Illinois litigation by temporarily blocking enforcement of several state provisions against the contracts and affiliated entities.
However, the decision does not resolve the broader state-federal dispute or the remaining challenge to Illinois’ fee structure. The case will continue toward a final determination, while other litigation involving sports event contracts remains pending or has produced different results.
The Crypto Times makes no prediction about the final outcome of the Illinois case or how other courts may ultimately resolve the federal-preemption question.
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