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Prediction market operator Kalshi has filed a lawsuit against the state of Illinois, seeking to block new taxes and licensing requirements that would classify the company as a sports betting operator beginning July 1.
The lawsuit, filed in the U.S. District Court for the Northern District of Illinois, marks the latest escalation in the growing legal battle between prediction market platforms and state gaming regulators across the United States.
Illinois authorities argue that Kalshi and similar operators are effectively offering sports betting products without complying with the same regulatory standards imposed on licensed sportsbooks such as DraftKings and FanDuel.
Kalshi, however, maintains that its offerings are federally regulated “event contracts” overseen exclusively by the Commodity Futures Trading Commission (CFTC), rather than sports wagers subject to state gambling laws.
“This action challenges the State of Illinois’s clear violation of the Supremacy Clause with respect to the regulation of event contracts,” the company stated in its complaint.
The dispute follows the approval of Illinois’ new $55.9 billion state budget, which introduced additional sports wagering taxes under Senate Bill 3019. The legislation imposes a 1.75% tax on the first 5 million sports wagers placed annually through prediction markets, increasing to 3.5% beyond that threshold. It also requires operators such as Kalshi to obtain an Illinois sports betting license.
Kalshi described the licensing process as “costly and burdensome.” Under Illinois law, online sportsbook licenses require a $15 million upfront fee valid for four years, followed by $1 million renewal fees.
The company also objected to Illinois’ geolocation requirements, which mandate that licensed operators only accept wagers from users physically located within the state. According to Kalshi, restricting access geographically would conflict with federal CFTC requirements that regulated contract markets operate on a nationwide basis.
The case forms part of a broader national debate over whether prediction markets should be treated as financial exchanges or gambling products.
Illinois regulators previously issued cease-and-desist letters to operators including Kalshi and Polymarket, prompting separate legal action from the CFTC earlier this year. In that filing, federal regulators argued that sports event contracts are more comparable to commodities futures markets than to traditional sports betting.
The controversy has intensified as prediction markets continue to attract political and financial attention. Kalshi recently reached a reported valuation of $22 billion and has emerged as one of the sector’s most prominent operators.
Meanwhile, sports wagering continues to grow rapidly in Illinois. According to state figures cited in the case, Illinois residents lost nearly $1.5 billion on legal sports betting last year after payouts.
Kalshi is seeking emergency relief through a temporary restraining order and preliminary injunction before the law takes effect next week. Illinois Attorney General Kwame Raoul’s office said it is reviewing the complaint.