Trump Administration Sues Illinois Over Prediction Market Regulations
The Trump administration has sued the State of Illinois to stop it from applying its gambling laws to prediction markets such as Kalshi or Polymarket, marking the latest escalation in a regulatory battle over who controls these multibillion dollar markets.
The federal lawsuit cites cease-and-desist letters that the Illinois Gaming Board sent over the past year to prediction markets including Crypto.com, Kalshi, Polymarket and Robinhood. The Gaming Board claimed these platforms offered illegal gambling and violated state law.
Illinois Governor J.B. Pritzker, Attorney General Kwame Raoul and members of the Illinois Gaming Board are named as defendants in the federal lawsuit.
A Pritzker spokesperson responded to the filing.
The Trump Administration is carrying water for companies driving well-documented and lucrative insider-trading schemes. These firms are making record profits while exposing Illinoisans to gaming products with no basic consumer protections or oversight. Illinois is not backing down. We will continue to fight to protect Illinois consumers.
The Commodities Futures Trading Commission argues in its lawsuit that 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 CFTCs 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 theory that Congress opened the door to nationalize gambling regulation through the CFTC.
Congress does not 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 would think they would be more explicit about it.
Lockhart also said the lawsuit increases the likelihood that the Supreme Court will take up the matter soon.
The lawsuit notes Chicagos own history as an innovator in the commodities market. Chicago was almost curtailed when the Illinois Supreme Court ruled in 1888 that dealing in futures was 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.
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 litigation could have wide financial implications for Illinois gambling industry. Sportsbooks such as FanDuel and DraftKings, which are subject to state regulation, have brought in more than $1.1 billion in state tax revenue since opening six years ago. The state is eager to protect that revenue.
Gambling companies must follow numerous regulations to operate in Illinois. These include truth-in-advertising laws, age limits for people 21-and-old and bans on in-state betting.
Under the CFTC, prediction markets receive less regulation than they would under Illinois gambling laws. They do not pay state taxes, report detailed information on bets or follow any 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. Donald Trump Jr. invests in Polymarket and works as a strategic advisor to a competitor, Kalshi.
FanDuel, the state largest sportsbooks, has subsequently launched its own prediction market, perhaps seeing the benefit of regulation-free gambling.
Illinois is also being sued in federal court by San Francisco-based cryptocurrency exchange Coinbase, which is seeking to open its own prediction market.
The case is expected to be heard in federal court in the coming months. A ruling could determine the future of prediction market regulation across the country.
The Department of Justice spokesperson stated the federal government has a clear role in overseeing interstate commerce. These state regulations overstep that authority.
Illinois Attorney General Kwame Raoul said they have a responsibility to protect Illinois residents from the risks of unregulated prediction markets. These platforms can be breeding grounds for fraud and manipulation.