Illinois Budget Targets Prediction Markets as Regulatory Fight Escalates

Illinois lawmakers have approved a fiscal year 2027 budget that includes new taxes on prediction markets, adding another layer to the state's ongoing dispute with the rapidly growing industry.

The budget, which passed during the final hours of the legislative session, introduces new taxes on prediction market sports contracts alongside measures targeting fantasy sports operators, cryptocurrency transactions, digital advertising, and social media companies. The move comes as Illinois continues pushing for greater oversight of prediction market platforms such as Kalshi and Polymarket.

The inclusion of prediction markets in the state's revenue plan is notable because Illinois remains involved in a broader legal battle over who has authority to regulate the products. State officials have repeatedly argued that sports-related event contracts resemble gambling products, while prediction market operators maintain they fall under federal commodities law.

Prediction Markets Become Part of Illinois Tax Strategy

Illinois' new budget is the largest in state history and relies on several new revenue sources to support spending plans for fiscal year 2027. Lawmakers approved taxes covering multiple industries, including prediction markets and fantasy sports, as the state looks for additional revenue streams without raising broad-based income or sales taxes.

The move places prediction markets alongside more established gambling-related products that are already subject to state taxation. Illinois regulators have previously argued that prediction market operators generate significant revenue from sports-related contracts while operating outside the framework that governs licensed sportsbooks.

Industry observers expect the tax provisions to face legal scrutiny given the unresolved questions surrounding state and federal authority over prediction markets. Some budget officials have reportedly been cautious about relying heavily on those revenues while litigation remains active.

Illinois Remains at the Center of the Prediction Market Debate

The budget measure arrives only months after Illinois became one of several states targeted by federal lawsuits tied to prediction market regulation.

Earlier this year, the Trump administration sued Illinois over its attempts to apply state gambling laws to prediction market operators. Federal officials argued that event contracts offered by companies such as Kalshi, Polymarket, Crypto.com, and Robinhood fall under the jurisdiction of the Commodity Futures Trading Commission rather than state gaming regulators. Illinois officials pushed back, saying the state has a responsibility to protect consumers and enforce its gambling laws.

The dispute has become one of the most significant regulatory battles in the US gaming industry. Several states have issued cease-and-desist orders or launched legal challenges against prediction market operators, while tribal gaming groups and commercial sportsbook operators continue arguing that sports event contracts should be treated similarly to traditional sports betting products.

Read Also: Nevada Court Order Adds Pressure on Prediction Market Industry

Another Sign States Are Not Backing Down

Illinois is not the first state to challenge prediction markets, but the decision to include the industry in its budget planning sends a clear signal about how lawmakers view the sector.

As previously covered by UMG Gaming, the American Gaming Association has claimed that states and tribal governments have lost more than $1 billion in potential tax revenue due to prediction markets operating outside traditional gaming frameworks.

With Illinois now moving beyond enforcement actions and incorporating prediction markets into its tax policy discussions, the fight over how these products should be regulated appears far from settled. States continue searching for ways to assert authority over the industry even as prediction market operators maintain that federal law remains on their side.

Stay tuned to UMG Gaming for more updates on prediction markets, federal regulation, and the evolving legal landscape surrounding event-based contracts.