Judge Pacold Enters Preliminary Injunction Blocking Illinois Licensing and Tax Rules on Sports Event Contracts

Judge Martha Pacold of the U.S. District Court for the Northern District of Illinois signed a preliminary injunction on 30 October 2026 that stops Illinois from enforcing its sports wagering licensing regime, and the tax built on it, against CFTC-registered exchanges and intermediaries that trade sports event contracts.

The order formalizes the ruling Pacold issued on 2 October 2026 in the consolidated cases Coinbase Financial Markets v. Raoul, United States v. Illinois and KalshiEX v. Raoul. The Commodity Futures Trading Commission (CFTC) is the federal derivatives regulator whose exchanges are at the center of the dispute. It is the latest in a run of state-federal clashes that Gamingo has tracked, including Utah's criminal charges against Kalshi and its co-founders and Kalshi's suit against Louisiana officials.

What the injunction does

The order bars Illinois from applying licensing requirements, and the fees and taxes that go with them, to swaps traded on CFTC-regulated venues. According to Gambling Insider, its text covers swaps including sports event contracts, traded on CFTC-regulated exchanges and through futures commission merchants (the intermediaries that route customer orders to those exchanges).

The court docket shows the judge granted the Coinbase motion for a preliminary injunction (ECF 27), citing her memorandum opinion (ECF 94) and a joint status report (ECF 95). She adopted the parties' proposed injunction, which had been due on 29 October 2026.

The order does not require anyone to obtain a sports betting license. It does the opposite for covered contracts: it removes Illinois' ability to demand one from federally registered exchanges and intermediaries.

Why the court found preemption

Pacold held that the Commodity Exchange Act (CEA) likely preempts Illinois' licensing regime as applied to exchange-traded event contracts. Preemption means federal law overrides a conflicting state law. According to a Holland & Knight analysis of the 2 October opinion, the judge reasoned that Kalshi's contracts are likely "swaps" under 7 U.S.C. §1a(47)(A)(ii).

The state provisions at issue are the Illinois Sports Wagering Act (230 ILCS 45) and the criminal gambling provision at 720 ILCS 5/28-1(a)(12). The opinion treats a contract as a swap only where its tie to a financial consequence is concrete and material. That test matters for operators, because it separates contracts that depend on an event with real financial effect from products that look like ordinary wagers.

The tax: it falls with the license

Pacold reserved judgment on Illinois' new fiscal year 2027 "exchange wager" fee rather than striking it down on its own terms. The fee, at 230 ILCS 45/25-90(d-20), applies to wagers placed through exchanges.

Holland & Knight reports that all parties told the court on 8 October that more briefing was not needed. The fee reaches only licensees, so enjoining the licensing requirement also prevents it from being collected from CFTC-registered exchanges and intermediaries. The parties preserved the separate question of whether a standalone state tax on federally regulated entities would be preempted.

That distinction is the practical lesson for state finance offices. Kalshi sued over the levy in June 2026, and Illinois did not book the expected revenue in its budget. Operators and tax advisers following the state's earlier wagering levies, covered in Gamingo's reporting on the Illinois sports betting tax bill, should note that this ruling addresses a license-linked fee, not a general tax on federally regulated exchanges.

A split picture across the courts

Federal courts have not converged on the preemption question. Per the Holland & Knight alert:

• The Ninth Circuit ruled against Kalshi in KalshiEX v. Assad on 28 August 2026.
• The Sixth Circuit did the same in KalshiEX v. Schuler on 25 September 2026.
• The Third Circuit found field and conflict preemption.
• Three petitions for certiorari are pending at the U.S. Supreme Court (Nos. 26-299, 26-338 and 26-344).
• A Wisconsin federal court denied the CFTC relief in July, and that case is on appeal to the Seventh Circuit.

On the federal side, the CFTC published a proposed rule on 19 October 2026 (RIN 3038-AF82) that would define "swap" to include event contracts. A companion interim final rule excludes casino-style gambling products from the swap definition. The line between the two will shape which contracts can rely on the Illinois reasoning.

What operators should watch

The injunction protects covered venues in Illinois, but its reach depends on the contract design. Sportsbook operators and affiliates that route customers to exchange-traded contracts should look at three points: whether the product is listed on a CFTC-registered exchange, whether it meets the swap test the court applied, and whether the state tries a tax structure that does not depend on licensing. Other states are pursuing different tactics, as in North Carolina's ethics rules for prediction markets.

A newsletter, The PM Pulse, also reported on 2 November 2026 that Pacold entered the injunction on 30 October, following the early-October ruling.

Status reviewed on 2 November 2026. Dates, case numbers and the tax rates come from the court docket and the Holland & Knight analysis of the 2 October opinion. More regulation news and North America coverage.