Kalshi sues Illinois over new tax on prediction market sports bets - Ars Technica
Skip to content
AI
Biz & IT
Cars
Culture
Gaming
Health
Policy
Science
Security
Space
Tech
Forum
Subscribe
Story text
Size
Small<br>Standard<br>Large
Width
Standard<br>Wide
Links
Standard<br>Orange
* Subscribers only
Learn more
Pin to story
Theme
Search
Sign In
Sign in dialog...
Text<br>settings
Story text
Size
Small<br>Standard<br>Large
Width
Standard<br>Wide
Links
Standard<br>Orange
* Subscribers only
Learn more
Minimize to nav
A fight between states and the federal government over who should regulate sports betting is heating up, as states accuse prediction markets like Kalshi of taking the exact same sports bets as gambling platforms without paying taxes or adhering to stricter controls.
Last Tuesday, Kalshi sued Illinois Attorney General Kwame Raoul, Governor J.B. Pritzker, and other officials after the state classified Kalshi and other prediction markets as unlicensed sports wagering operators.
It’s not the first legal battle between a prediction market and a state, but it is perhaps the most urgent for Kalshi, which is the biggest prediction market for sports bets. Across the board, prediction markets just had their biggest week ever, amid major sporting events like the NBA Finals, the World Cup, and the Stanley Cup. If the law stands, Kalshi would owe taxes no other state is charging and could face felony charges if violations are found.
For Illinois, regulating prediction markets has fast become a priority. Kalshi’s lawsuit came after Illinois logged its most devastating year of legal sports betting losses on record in 2025, when residents lost close to $1.5 billion, the Daily Herald reported. And it’s not just existing exchanges that could siphon more losses off residents. As Meta toys with building a similar sport-wagering platform that could one day accept real money and plug into its vast social networks, it seems likely Illinois is hoping to get ahead on regulatory plans before such betting becomes even more popular and normalized.
Moving to regulate more sports betting in the state, Illinois passed a law adding new taxes specifically on sports betting conducted on prediction markets. Starting July 1, Kalshi would have owed a 1.75 percent tax on the first 5 million sports wagers per fiscal year, then a 3.5 percent tax on every subsequent wager.
Additionally, getting the state license would have cost Kalshi $15 million for the first four years, then $1 million annually. Kalshi—valued at $22 billion—considers the license too “costly and burdensome,” the complaint said.
Kalshi wants exclusive CFTC oversight
Specifically, Kalshi sued to block Illinois from requiring the platform to obtain the expensive sports betting license, verify that bettors are located in the state, and pay additional taxes.
The company has alleged that states like Illinois are overstepping in attempting to regulate prediction markets as if they were sports wagering operators. Instead, a federal agency, the Commodity Futures Trading Commission (CFTC), has exclusive authority to regulate Kalshi, the platform argued.
Further, Kalshi alleged that complying with Illinois law and restricting residents there would violate the CFTC’s requirements to provide uniform access nationwide to its platform.
Without the court’s intervention, Kalshi will be forced to choose between violating state or federal law, the platform argued. It has asked the court to clarify that the CFTC alone can regulate prediction markets and to order a preliminary injunction stopping Illinois from lumping Kalshi in with traditional betting platforms like FanDuel.
Without an injunction, Kalshi may face civil and criminal penalties, the platform said. According to Kalshi, complying with Illinois law—and a patchwork of state laws that could follow—would also require the platform to invest in expensive “technological solutions to limit access.” And there’s no guarantee that Illinois would grant the license, threatening irreparable harms, including income and reputation loss, Kalshi argued.
What is a sports bet according to Kalshi?
The key fight that Kalshi and other prediction markets must win is over the legal definition of sports betting.
Kalshi’s lawsuit comes after the CFTC sued Illinois in April. In that complaint, the CFTC alleged that what Illinois defined as illegal sports bets on Kalshi were rather permissible “swaps” on “directives contracts” known as “event contracts” that the CFTC allows, so that stakeholders can hedge their risks when navigating uncertain but financially significant events.
In its complaint, Kalshi explained that event contracts “are financial tools used to mitigate risk” caused by future events. As Kalshi explained:
“They identify a future event with several possible outcomes, a payment schedule for the outcomes, and an expiration date. Most commonly, event contracts involve a binary question: Every ‘yes’ position has an...