Illinois Judge Rules Kalshi Sports Contracts Likely Qualify as Swaps

On Friday, Judge Martha M. Pacold in Illinois ruled that Kalshi sports event contracts likely qualify as swaps under federal law. As a result, the state cannot enforce its sports betting licensing rule against them. 

While Kalshi won here, Pacold's decision includes the word "bet" multiple times. The ruling from Pacold also covers three consolidated cases, which include Attorney General Kwame Raoul. As for Illinois' new transaction fees, Pacold declined to rule on those and whether they'd be added to Illinois' 2027 fiscal budget. 

Judge Rejects Illinois' Interpretation of Sports Event Contracts

Illinois argued that an "event" in a sports contract is the game, but not who wins it. Pacold disagreed and cited rulings from the Sixth and Ninth Circuits that went against Kalshi. 

“Although ‘event’ and ‘contingency’ could be interpreted narrowly to refer only to the game itself, the words sit next to phrasing that broadens them,” Pacold wrote, pointing to the statute’s language covering “the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency.”

As an example, Pacold mentioned two contracts made before an Aug. 28 game between the Cincinnati Bengals and Chicago Bears. One contract was for the Cubs to win, and the other involved the Cubs improving their record. 

For Raoul, the first is not a swap because the win depends on the game's outcome, whereas the second is a swap. After all, the event is a season-long record. 

“The court finds the distinction unlikely,” she wrote. “Little separates the two contracts, and statutes do not usually draw lines so capriciously. When picking between two plausible interpretations, and one draws a consistent line, and the other does not, the court will favor consistency.”

As a result, Illinois cannot enforce its sports betting licensing rules against Kalshi. This comes after Illinois' new budget charged prediction markets 1.75% on the first 5 million sports trades each year and 3.5% after that; again, Pacold didn't rule on that, but did say that a fee steep enough to ban Kalshi likely wouldn't hold up. 

As mentioned, Pacold used the word "bet" a lot, including in an instance related to the World Cup, saying that Kalshi account holders this summer "could have bet on whether Spain or Argentina would win the World Cup."

Kalshi Legal Battles Continue Across States

This is a win for Kalshi, but there have been many other legal rulings, including the Sixth Circuit favoring Tennessee and Ohio, Ohio issuing 10 cease-and-desist notices, the Ninth Circuit ruling in favor of California tribes, and the Third Circuit siding with Kalshi in Illinois. 

New Jersey has since petitioned the U.S. Supreme Court to hear its case.