Kalshi had lost 16 federal court rulings in a row before Friday, when a judge in Illinois broke the pattern and granted the company a partial preliminary injunction. Judge Martha Pacold held that the fact that some swaps are entertaining does not make them illegal.
In her ruling, Pacold wrote that the plaintiffs had shown Kalshi is a designated contract market and that its core sports-related contracts are swaps. She added that many of the instruments in dispute are likely swaps under the Commodity Exchange Act, even if people find them fun to trade.
It is the first ruling in Kalshi's favour since July, when a Minnesota judge stopped that state from enforcing a new law against prediction markets. In both Minnesota and Illinois, the CFTC sued the state to defend Kalshi.
Kalshi welcomes the Illinois decision
Kalshi co-founder Luana Lopes Lara reacted on X on October 2 with a single word: "Beautiful". The company's Head of Litigation, Jovy Dedaj, said on LinkedIn that the decision from a Chicago federal court, in the birthplace of American derivatives markets, speaks for itself.
Dedaj argued that some industries and interest groups dislike novel event contracts because they are entertaining, but that is not a legal basis for challenging them. In his view, it is the CFTC that decides what counts as a swap, not 50 separate state gaming commissions.
The CFTC has also moved to clarify what counts as a swap in proposed rules that it recently sent to the White House, which could further strengthen the case for sports contracts under federal law. Pacold noted in her ruling that the agency has never held Kalshi's contracts to be impermissible gaming contracts and has never ordered Kalshi to remove them.
Experts: the court separated the law from discomfort
Legal expert Alper Ozgit, co-founder of Lexicon Labs, an organisation that aims to make law easier to understand, also backed the ruling. He told Gaming America that the Illinois court keeps the statutory question apart from the gambling question: people may trade these contracts for fun, but that does not make them any less swaps under the broad definition Congress wrote. The real question, he said, is whether they fit the statute, not whether we like the result.
The ruling creates a split within the same circuit with a Wisconsin district court decision, where a judge refused the CFTC an injunction in its lawsuit against that state. That case is now on appeal to the Seventh Circuit. Kalshi has appealed the Wisconsin decision too and will likely use the Illinois ruling to strengthen its position.
Could the Supreme Court side with Pacold?
The Sixth and Ninth Circuits have already ruled against Kalshi, while the Third Circuit found in the company's favour. New Jersey has asked the Supreme Court to take the case.
With so many rulings going against Kalshi, it looked likely that states would eventually succeed in blocking sports prediction markets. The Illinois judgment puts that assumption in doubt. Ozgit said he has long believed the Supreme Court is more likely to follow reasoning like Pacold's, which keeps what the statute says separate from discomfort about its consequences.
Law professor Melinda Roth pointed to a gap in the rulings against Kalshi. Those judges said its sports markets have all the hallmarks of sports betting, but that overlooks the fact that the CFTC authorised the markets as swaps. In her view, those courts say sports event contracts are not swaps without ever addressing how they were self-certified, listed, traded and centrally cleared as swaps.
If the White House also reviews and finalises the CFTC's new rules, and the administration, according to reporting, has several ties to prediction markets, sports markets could be here to stay.
Is the judge's example too narrow?
Ozgit cautioned that a contract can be a swap and still be strongly discouraged or prohibited under federal law. He expects states and tribes will need to pursue other legal theories to find relief.
In her ruling, Pacold used a simple sports contract as an example: "Will the Chicago Cubs win the 2026 World Series?" Austin Martin, an associate at law firm Massey & Gail LLP, said that relying on such an example makes it much easier to side with Kalshi, because that contract is a clean binary option.
States may therefore turn to more complex markets such as parlays, which have become a growing driver of volume at Kalshi. Over the weekend, parlays accounted for about $4.9 billion in volume, against $1.5 billion in single sports markets. Parlays always show much higher volume, though, and a Gambling Insider analysis noted that counting them at $1 may inflate the figure as much as 16-fold.
What could come next
Parlays that Kalshi promotes, sometimes with as many as 30 legs, will find it harder to show real economic value. Earlier this year, a judge in Connecticut ruling against Kalshi said such parlays have no independent financial, economic or commercial consequence.
One possible outcome, which some observers see coming, is a compromise in which certain sports markets are allowed on prediction markets while parlays and prop bets are prohibited.
