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A federal court has temporarily blocked Tennessee from enforcing its cease-and-desist order against prediction market operator Kalshi. The court found that Kalshi is likely to succeed on the merits of its case and could suffer irreparable harm if the state proceeds with enforcement. This ruling comes amid a growing national dispute over the legality of prediction markets.
Key Takeaways
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A federal court issued a temporary restraining order against Tennessee's enforcement action targeting Kalshi.
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The court cited Kalshi's likelihood of success on the merits and potential for irreparable harm.
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Tennessee had ordered Kalashi , Polymarket, and Crypto.com to cease offering sports event contracts by January 31, 2026.
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Kalshi argues its operations fall under federal jurisdiction as a designated contract market regulated by the CFTC.
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Similar legal battles are ongoing in other states, with mixed outcomes.
Tennessee's Enforcement Action
Tennessee's Sports Wagering Council (SWC) and the state's attorney general issued cease-and-desist letters to Kalshi, Polymarket, and Crypto.com. The regulators accused the platforms of illegally offering sports wagering products without a license under the Tennessee Sports Gaming Act. The SWC argued that these "event contracts" are essentially wagers on sporting events, a practice reserved for licensed sportsbooks in the state. Furthermore, the regulators pointed to a lack of consumer protection measures, such as age restrictions, responsible gaming tools, and anti-money laundering controls, which are mandated for licensed operators.
The state demanded that the companies immediately stop offering sports-related contracts to Tennessee residents, void all existing contracts for users in the state, and refund customer deposits by January 31, 2026. Non-compliance could have resulted in fines of up to $25,000 per violation and potential criminal liability.
Kalshi's Legal Challenge
Kalshi promptly filed a lawsuit in federal court, asserting that as a Designated Contract Market (DCM) regulated by the U.S. Commodity Futures Trading Commission (CFTC), its operations fall under exclusive federal jurisdiction. The company contends that federal law preempts state gambling laws in this context. The federal court's temporary restraining order does not definitively rule on the legality of prediction markets but rather pauses Tennessee's enforcement efforts pending further proceedings, including a preliminary injunction hearing scheduled for late January.
Broader Regulatory Landscape
The dispute in Tennessee is part of a larger, nationwide trend of state regulators clashing with prediction market platforms. Similar legal battles have occurred in other states, with varying results. Federal courts in New Jersey and Nevada have previously sided with Kalshi, blocking state enforcement actions. However, a Maryland court denied a similar request for injunctive relief, upholding the state's regulatory authority. The outcome of these ongoing legal challenges could significantly shape the future of prediction markets and their regulation across the United States, determining whether they are treated as federally regulated derivatives or subject to state-level gambling laws.
Sources
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Tennessee sends cease-and-desist letters to Kalshi, Polymarket, Crypto.com — TradingView News, TradingView — Track All Markets.
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Tennessee Orders Kalshi, Polymarket, and Crypto.com to Halt Prediction Markets, Gambling Insider.
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Tennessee Escalates Clash with Prediction Markets, Gambling News.
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