The Trump administration is suing the State of Illinois to stop it from applying its gambling laws to prediction markets such as Kalshi or Polymarket, the latest salvo in an ongoing regulatory battle over who gets to regulate the multibillion dollar markets.
The lawsuit cites cease-and-desist letters that the Illinois Gaming Board had sent over the past year to prediction markets such as Crypto.com, Kalshi, Polymarket and Robinhood, claiming that they offered “illegal gambling” and violated state law.
Illinois Gov. J.B. Pritzker, Attorney General Kwame Raoul and members of the Illinois Gaming Board are named as defendants in the federal lawsuit.
The Pritzker administration said the federal government wants to put profits over people.
“The Trump Administration is carrying water for companies driving well-documented and lucrative insider-trading schemes,” a Pritzker spokesperson said in a statement.
“These firms are making record profits while exposing Illinoisans to gaming products with no basic consumer protections or oversight. Illinois isn’t backing down— we will continue to fight to protect Illinois consumers.”
The Commodities Futures Trading Commission argues in its lawsuit that the prediction markets are not offering gambling but rather commodities similar to grain futures. As such they are “designated contract markets” that fall under the authority of the CFTC.
The agency argues that Illinois’ efforts to regulate prediction markets undermines uniformity in regulations and subverts the CFTC’s “congressionally mandated authority.” The CFTC also sued Arizona and Connecticut.
DePaul University Assistant Law Professor Karl Lockhart, who has studied prediction markets, scoffed at the lawsuit’s theory that Congress had opened the door to nationalize gambling regulation through the CFTC.
“Congress doesn’t hide elephants in mouseholes,” Lockhart said, quoting U.S. Supreme Court Justice Justice Antonin Scalia. “If Congress had really meant to authorize these designated contract market places to offer sports gambling products, you’d think they’d be more explicit about it.”
Lockhart also said that the lawsuit increases the likelihood that the Supreme Court will take up the matter soon.
The lawsuit notes Chicago’s own history as an innovator in the commodities market, but which was almost curtailed when the Illinois Supreme Court ruled in 1888 that “dealing in futures” was a “a crime against the state, a crime against the general welfare and happiness of the people, a crime against religion and morality, and a crime against all legitimate trade and business.”
But the U.S. Supreme Court ruled 17 years later that commodities serve a valuable function “as a means of avoiding or mitigating catastrophes, equalizing prices and providing for periods of want,” the lawsuit notes.
For Illinois, the litigation could have wide financial implications for the gambling industry. Sportsbooks such as FanDuel and DraftKings, which are subject to state regulation, alone have brought in more than $1.1 billion in state tax revenue since opening six years ago, and the state is eager to protect that pot of money.
In addition, gambling companies have to follow numerous regulations to operate in the state including truth-in-advertising laws, age limits for people 21-and-old and bans on in-state betting.
Under the CFTC, prediction markets have received less regulation than they would under Illinois gambling laws. They do not pay the state taxes, report detailed information on bets or follow any of the gambling regulations overseen by the Illinois Gaming Board.
The lawsuit follows a pledge by CFTC Chairman Mike Selig, who vowed in February to fight state efforts to regulate prediction markets. The Trump family has a financial interest in prediction markets with Donald Trump Jr. investing in Polymarket and working as a “strategic advisor” to a competitor, Kalshi.
Perhaps seeing the benefit of regulation-free gambling, FanDuel, the state’s largest sportsbooks, has subsequently launched its own prediction market.
Illinois is also being sued in federal court by San Francisco-based cryptocurrency exchange Coinbase, which is seeking to open its own prediction market.
Story by Casey Toner for Illinois Answers.
This article first appeared on Illinois Answers Project and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License.
