Illinois regulators are drawing a hard line against Coinbase’s push into sports-based prediction markets, arguing that the crypto exchange is not innovating within financial law but attempting to repackage sports betting as a federally regulated product. In filings submitted to a federal court, the state has pushed back against Coinbase’s claim that short-term contracts tied to game outcomes belong under the oversight of the Commodity Futures Trading Commission (CFTC). Illinois maintains that these contracts have little to do with economic risk or financial exposure and instead mirror traditional wagers that fall squarely under state gambling law. At the heart of the dispute is a deceptively simple question with nationwide implications: when people trade on who wins or loses a sporting event, are they participating in a derivatives market—or placing a bet?
Coinbase launched the legal battle in December, seeking a ruling that would prevent Illinois, Michigan, and Connecticut from treating sports-focused “event contracts” as illegal gambling. The company argues that these markets operate like neutral exchanges, matching buyers and sellers rather than acting as sportsbooks that set odds or profit directly from losses. Illinois sees it differently. In its latest court filing, the state argues that athletic competitions are not economic instruments and that contracts paying out based on game results lack the core characteristics of swaps or other derivatives governed by federal law. Without an underlying financial or commercial variable, Illinois contends, these products fall outside the CFTC’s authority.
If the court agrees, the consequences are clear: platforms offering these markets to Illinois residents would need approval from the Illinois Gaming Board, along with compliance obligations that include licensing, consumer protections, reporting requirements, and state taxation. The state’s position leans in part on how similar products have been described elsewhere. Illinois points to regulatory filings made by Kalshi, a prediction market platform whose offerings pay out based on the results of professional and college sports games. According to the state, those descriptions reinforce the idea that these contracts are about sporting outcomes—not financial exposure. From Illinois’ perspective, Coinbase is attempting to sidestep gaming law by anchoring itself to federally regulated derivatives infrastructure, even though the underlying activity resembles betting as traditionally understood by state regulators.
Coinbase’s lawsuit names Illinois Attorney General Kwame Raoul and senior officials at the Illinois Gaming Board, directly challenging the state’s authority to regulate these products. Illinois’ aggressive stance did not emerge in a vacuum. The Gaming Board has already made clear it intends to police what it sees as unlicensed sports wagering, even when it comes wrapped in fintech branding. Earlier this year, the agency publicly acknowledged sending cease-and-desist letters to multiple online platforms it believed were offering sports betting without authorization. That list included not only Kalshi but also well-known names like Robinhood and Crypto.com. Those earlier enforcement actions help explain why Illinois is resisting Coinbase’s push for federal preemption.
From the state’s viewpoint, sports event contracts are not a regulatory gray area waiting for Washington to clarify—they are a familiar activity already governed by existing gambling statutes. Legally, the clash centers on definition and control. Coinbase argues that Congress deliberately placed derivatives markets under a single federal regulator through the Commodity Exchange Act, leaving states no room to intervene. Illinois counters that the Act never contemplated contracts tied solely to sporting outcomes, and that states retain authority when products function as wagers rather than financial instruments. The CFTC’s remit covers futures, swaps, and other derivatives tied to economic variables. Courts have not been uniform in deciding where sports-based event contracts fit within that framework, and earlier disputes involving similar platforms have already produced mixed signals. That uncertainty makes the Illinois case especially significant. A ruling from the Northern District of Illinois could shape how prediction markets operate nationwide, influencing not only exchanges and regulators but also sportsbooks and sports leagues watching closely from the sidelines.
Both sides appear prepared for a drawn-out fight. Coinbase is seeking declaratory and injunctive relief, while Illinois is defending what it sees as its core regulatory authority. With product launches and enforcement timelines hanging in the balance, neither party has an incentive to slow the pace. If Illinois succeeds, platforms offering sports-linked contracts may face a patchwork of state licensing requirements—or be forced to block users in certain jurisdictions altogether. If Coinbase prevails, states could find themselves largely sidelined, with sports prediction markets governed primarily at the federal level. Either way, the outcome will help determine whether betting on games through financial-style contracts becomes a regulated feature of U.S. markets—or remains firmly in the hands of state gaming regulators who see little difference between a wager and a “derivative” that pays out on the final score.
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