The Gambling Wire: Illinois Federal Judge Sides With Prediction Markets

A federal judge gave prediction markets a rare recent legal victory, while Ohio regulators moved in the opposite direction with a sweeping new enforcement push.

Prediction markets picked up a rare recent court victory late last week after a federal judge in Illinois concluded that sports event contracts offered by Kalshi are likely swaps and that parts of the state’s gambling laws are therefore likely preempted by federal law. The ruling came the same day Ohio issued or reasserted cease-and-desist notices against 10 companies following the Sixth Circuit’s recent decision siding with the state.

Elsewhere, California gubernatorial candidate Xavier Becerra returned contributions from Kalshi and Underdog, Fanatics signaled substantially higher spending ahead, Brazil’s betting ban drew dozens of proposed amendments, and Czech authorities moved to block Kalshi.

The Big Story: Illinois Judge Hands Prediction Markets Rare Court Win

Prediction markets secured one of their most significant recent legal victories after a federal judge in Illinois sided with Kalshi, Coinbase and the CFTC against state regulators.

U.S. District Judge Martha Pacold found that Kalshi’s core sports-related contracts are likely “swaps” under the Commodity Exchange Act (CEA). She granted the plaintiffs’ preliminary injunction requests in part, finding that several Illinois laws regulating those contracts likely conflict with federal law.

A key part of Pacold’s reasoning involved the CEA’s reference to contracts dependent on the “occurrence, nonoccurrence, or the extent of the occurrence” of an event or contingency. Pacold rejected the narrower distinction between a sporting event and its outcome adopted in the other litigation.

She wrote that if “occurrence” and “nonoccurrence” address whether an event happens, “the extent of the occurrence” can reach “how an event resolves.”

Pacold also weighed in on the “impartial access” argument, ruling that the state would require Kalshi to impose age and geographic restrictions, effectively determining who could participate in its federally regulated market. Pacold noted that those requirements may conflict with CFTC rules.

The court addressed Illinois’ wagering fees but did not rule on whether they are preempted. Pacold said states can generally impose costs on federally regulated activity without necessarily creating a conflict, meaning Illinois may still be able to tax prediction-market transactions.

However, she warned that “what defendants cannot do overtly, they cannot do covertly,” leaving the fee question open for further briefing if the charges effectively regulate or restrict trading.

The decision contrasts sharply with recent rulings elsewhere, including the Sixth Circuit’s Sept. 25 decision siding with Ohio and Tennessee. It also creates a district-court split within the Seventh Circuit, with a federal judge in Wisconsin siding with state regulators against the CFTC.

The Daily Wire

Ohio Targets 10 Companies After Sixth Circuit Ruling

The Ohio Casino Control Commission issued cease-and-desist notices to Underdog, Gemini, Coinbase, ProphetX, Novig, Polymarket, Plus500, Moomoo and Webull on Oct. 2, while separately reasserting an earlier notice against Robinhood.

The commission alleges that the companies are offering or facilitating unlicensed sports betting and has ordered them to stop offering sports event contracts to Ohio customers. The notices extend to companies that solicit or accept orders as futures commission merchants. The regulator gave recipients 14 days to confirm compliance.

Ohio repeatedly cited the Sixth Circuit’s decision, which held that the sports contracts at issue are not swaps under the CEA and that federal law did not preempt Ohio’s sports wagering laws.

Becerra Returns Kalshi, Underdog Contributions

California gubernatorial candidate Xavier Becerra has returned major campaign contributions from Kalshi and Underdog Sports Holdings, raising questions over whether his campaign is distancing itself from companies involved in prediction markets.

Gaming attorney Daniel Wallach pointed out that Becerra’s latest campaign finance filing lists refunds of Kalshi’s $39,200 contribution and $50,000 from Underdog Sports Holdings.

The Kalshi contribution drew scrutiny when it was made shortly before California’s June primary because the prediction market was simultaneously offering contracts on the gubernatorial election. Kalshi contributed $39,200, while its market at the time gave Becerra a 74% chance of winning the governorship.

Fanatics Eyes Spending Surge as Competition Intensifies

Fanatics is preparing to significantly increase spending on its betting business as CEO Michael Rubin looks to narrow the gap with FanDuel and DraftKings.

Rubin told Bloomberg that Fanatics could spend between $800 million and $1 billion on betting and gaming advertising in 2027, up from roughly $350 million this year. The increase would represent a major escalation as Fanatics attempts to build market share behind the two U.S. sportsbook leaders.

Rubin said that roughly $2 billion of the company’s $14 billion in revenue comes from sports betting. According to him, Fanatics now holds roughly 10% of the U.S. sports betting market after launching online wagering in 2023.

The Fanatics CEO also said the company’s private status gives it an advantage over publicly traded companies such as DraftKings and Flutter. Rubin also pointed to Kalshi and Polymarket as part of a market he expects to become more complicated next year.

It’s going to be a very tough road ahead for everybody. It’s going to be a tough road ahead for the traditional betting companies, like FanDuel, DraftKings and MGM. It’s going to be tough roads ahead for Kalshi and Polymarket. We think the regulatory environment is unlikely to be as it is today,” Rubin said.

Brazil Betting Ban Draws 42 Amendments

Brazil’s online betting ban has drawn 42 proposed amendments in Congress, although four have since been withdrawn, according to the legislature’s website.

The proposals cover a wide range of approaches to the measure. Some would narrow the prohibition to certain online casino products, such as slots, while others would preserve the regulated market for licensed operators and focus enforcement efforts on unauthorized sites.

Other amendments address the financial and regulatory fallout from the ban, including potential refunds for unused portions of operator license periods, changes to advertising and sponsorship restrictions, sanctions and enforcement procedures, and the allocation of fines and other revenues.

Congress must approve the provisional measure to become permanent. Lawmakers can continue filing amendments through Oct. 13.

Mormon Leader Condemns Rise of Prediction Markets

The Church of Jesus Christ of Latter-day Saints leadership has criticized the rapid growth of sports betting and prediction markets, adding another voice to opposition against the sector in Utah.

D. Todd Christofferson, one of the top three leaders of the Mormon church, used its semiannual general conference to warn that the expansion of online gambling is fostering greed, particularly among younger people.

“For us as Latter-day Saints, overarching all other concerns is the fact that gambling is morally wrong. Gambling is built on the desire to obtain something for nothing,” Christofferson said.

The comments come amid the rapid growth of prediction markets, including in Utah, where all forms of gambling are prohibited. The state is one of over two dozen that have engaged in regulatory battles with the sector.

A federal judge sided with Utah regulators in August, rejecting Kalshi’s effort to prevent enforcement of the state’s gambling laws.

NFL, theScore Bet Announce Canadian Partnership

The NFL and PENN Entertainment’s theScore Bet have entered a multi-year partnership covering the operator’s Canadian business.

The agreement gives theScore Bet access to NFL trademarks, marketing rights and league intellectual property, including around major events such as the NFL Draft and Super Bowl. The partnership extends across theScore Bet, theScore Casino and Hollywood Casino.

The deal follows theScore Bet’s recent expansion into Alberta and a separate partnership with the Canadian Football League.

Developments to Watch This Week

Prediction market volume will once again be worth watching this week after two consecutive record-setting football weekends. The main question is whether Sunday volume can break another record and how smaller platforms are performing.

The sector also faces another busy week in court.

Oral arguments in the CFTC lawsuit against Kentucky are scheduled for Oct. 9. The Seventh Circuit has ordered Ho-Chunk Nation to respond by Oct. 8 to Kalshi’s petition for permission to appeal, while in the Illinois case, Judge Pacold has ordered the parties to propose by Oct. 8 a schedule for supplemental briefing over the state’s wagering fees.

In New York, the parties in the Polymarket litigation have until Oct. 7 to tell the court whether they want to proceed or stay the cases pending resolution of related Kalshi and Coinbase appeals before the Second Circuit.

Several major rulings involving Kalshi also remain outstanding. The Massachusetts Supreme Judicial Court has yet to rule following May arguments, while the Fourth Circuit is still considering KalshiEX v. Martin.

The fallout from DraftKings’ use of artificial intelligence could also develop further. Regulators in Massachusetts, Michigan and Maine have indicated that they are examining the issue following allegations over the use of AI in customer targeting and promotional offers. It will be worth watching whether those reviews lead to formal regulatory action or whether additional states open probes.

Brazil’s online betting ban enters another important week as licensed operators must shut down by Oct. 6 and lawmakers continue considering changes to the provisional measure. Attention will also remain on whether additional illegal platforms enter the market.

Featured image: Ken Lund via Wikimedia Commons (license)

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