Illinois lawmakers have been some of the strictest on sports betting, and now the same is happening to prediction markets like Kalshi and Polymarket.
After increasing taxes on sportsbooks just last year, state legislators are now considering another round of changes that would raise operating costs for licensed betting operators while also attempting to bring prediction markets like Kalshi under the same regulatory umbrella.
If approved, the proposal could reshape how sports related event trading is regulated in one of the country's largest betting markets.
Is Sports Betting the Same as Prediction Markets?
Lawmakers want to increase taxes on licensed sportsbooks as Illinois continues searching for additional state revenue. The proposal would add another financial burden to operators that are already paying one of the highest tax rates in the United States after the state's progressive tax structure took effect in 2025.
Illinois considers Kalshi in the same group, but prediction markets are prepared to fight back.
Illinois lawmakers are seeking to classify sports related prediction markets under the same framework that governs traditional sportsbooks. If that happens, companies offering contracts on sporting events could be required to obtain state gaming licenses and comply with Illinois gambling regulations instead of relying solely on federal oversight.
That issue has become one of the biggest legal battles facing prediction markets in 2026 and it will continue for a long time.
Who Should Oversee Prediction Markets?
Kalshi has consistently argued that its event contracts fall under the authority of the Commodity Futures Trading Commission rather than individual state gaming regulators. Several states have challenged that interpretation in court, creating an ongoing jurisdictional fight over who has the authority to regulate sports prediction markets. Illinois has emerged as one of the most aggressive states pushing back against the industry's expansion.
The timing of the proposal is notable as quick expansion is happening. Prediction markets have experienced explosive growth this year, fueled largely by the 2026 FIFA World Cup.
Kalshi, Polymarket, and other exchanges have generated billions of dollars in trading volume as users embraced contracts tied to sporting events, politics, economic data, and entertainment. That rapid growth has drawn increased attention from lawmakers as they look to capitalize on tax revenue.
Sportsbook operators have also voiced concerns that prediction markets are competing for many of the same customers while operating under a different regulatory model. Licensed sportsbooks pay substantial state taxes, licensing fees, and compliance costs, while federally regulated exchanges argue they should not be subject to state gambling laws.
Illinois lawmakers appear to be siding with the sportsbooks because both benefit by agreeing.
If the legislation advances, prediction market companies could face new licensing requirements or restrictions before offering sports contracts to Illinois residents. There would be plenty of legal battles after the fact, and prediction markets are ready to fight in court.
The Trade Handle Prediction Markets Take
The long term implications could be significant for prediction markets. Illinois’ actions may encoruage other states to follow.
The debate also highlights a broader shift taking place in the gaming industry.
Prediction markets have evolved from niche financial products into mainstream platforms where users can trade contracts for everything, but this will come with them being grouped into sports betting.
As their popularity continues to rise, states are increasingly questioning whether those products should be treated like sportsbooks to raise their tax revenue.