Illinois takes Kalshi preemption ruling to Seventh Circuit

Judge Martha Pacold's October injunction did not end the Illinois fight. It started the next one.

The injunction barred Illinois regulators from doing anything to prediction platforms operating under CFTC registration — no licensing requirements, no taxes, no civil enforcement, no criminal referrals. Illinois responded by filing with the Seventh Circuit, and the case now sits with an appellate court that will determine whether a federal judge in Chicago correctly read the boundary between CFTC jurisdiction and state police power.

The underlying legal architecture is not complicated, though it is contested. The Commodity Exchange Act grants the CFTC exclusive jurisdiction over designated contract markets. Kalshi holds that designation. Illinois argued that sports-event contracts are, whatever their label, a form of sports betting subject to state gambling law. Judge Pacold found that argument insufficient to overcome federal preemption at the preliminary injunction stage — meaning she concluded Kalshi was likely to succeed on the merits, not merely that the question was close.

The Seventh Circuit will apply a different standard. A preliminary injunction survives appellate review only if the district court abused its discretion. That is not an easy showing for Illinois to make, and the state's appellate counsel will know it. The stronger play on appeal is not to relitigate the merits directly but to attack the scope — to argue that even if preemption applies in some form, Pacold's injunction went further than necessary by blocking licensing and taxation alongside enforcement.

That is where I think Illinois has a real argument, and I do not think the consensus is pricing it correctly. The preemption of criminal enforcement against a federally registered entity is well-supported by existing precedent. The preemption of a state's authority to tax transactions occurring within its borders is a materially harder case, and the Seventh Circuit has shown no particular appetite for broad readings of federal preemption in commercial contexts. Illinois proposed a transaction tax in July — not a ban, not a licensing requirement designed to exclude — and the question of whether a neutral revenue measure falls within the CEA's preemptive reach has not been cleanly resolved at the circuit level.

The same tension is playing out in Utah, where operators are pulling back not because a court told them to but because fourteen criminal charges against Kalshi's founders produced a risk calculus that no compliance team was willing to hold. DraftKings and FanDuel retained financial event contracts tied to stocks and economic benchmarks. Fanatics stopped accepting trades entirely as of November 4. The practical result is a state-by-state fragmentation that the Illinois injunction was supposed to prevent — and that fragmentation will continue until an appellate court either affirms the preemption theory broadly or cuts it back.

The Seventh Circuit will not move quickly. Appeals from preliminary injunctions can take months, and the court has no obligation to expedite a case simply because an industry finds the uncertainty expensive. During that period, Kalshi continues to operate in Illinois under the injunction's protection.