Federal judge blocks Tennessee’s attempt to halt Kalshi sports event contracts
A federal judge has temporarily blocked Tennessee’s attempt to force prediction market Kalshi to halt its sports-related contracts in the state, marking a significant development in a broader legal battle over the regulation of event-based trading platforms.
According to CoinDesk, the Tennessee Sports Wagering Council had previously sent cease-and-desist letters to Kalshi, as well as fellow prediction markets Crypto.com and Polymarket, on January 9.
In the letters, the regulator had ordered the platforms to stop offering and void all sports-linked event contracts to state residents, and refund customer deposits by January 31. Failure to comply would result in a US$25,000 fine per violation, as well as the possibility of a criminal referral for illegal gambling promotion.
However, the federal judge has now stepped in to block the order after Kalshi argued that its operation does not fall under state gambling laws. In its argument, Kalshi said that as they are registered with the Commodity Futures Trading Commission, they fall under exclusive federal jurisdiction and thus cannot be stopped from operating by state bodies.
It is just another addition to the states vs prediction market platforms battle that is raging across the country.
Many states, including Nevada, New Jersey, Connecticut, New York, Ohio, and Massachusetts, have taken action to prevent Kashi from operating and have found themselves embroiled in legal battles with the prediction market operator, similar to those in Tennessee.
A preliminary injunction hearing is now scheduled for January 26.
Charlotte Capewell brings her passion for storytelling and expertise in writing, researching, and the gambling industry to every article she writes. Her specialties include the US gambling industry, regulator legislation, igaming, and more.
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The Backstory
Why Tennessee’s order matters now
Tennessee’s move to stop Kalshi from offering sports event contracts fits a pattern that has emerged as prediction markets push into mainstream sports. The state’s cease-and-desist letters in early January threatened fines and potential criminal referral unless platforms voided sports-linked trades and refunded deposits by the end of the month. A federal judge has now paused that order, setting up a preliminary injunction hearing for Jan. 26 and signaling how fast these disputes are moving. The clash is not isolated. Regulators in several states have questioned whether event contracts tied to games are effectively sports bets that belong under gaming laws. Kalshi counters that it is a federally regulated derivatives market, registered with the Commodity Futures Trading Commission, and therefore outside state gambling enforcement. The question now ricocheting across courts is who gets to set the rules when finance and gambling converge.
A clash over who regulates prediction markets
Kalshi’s position rests on the premise that its contracts are financial instruments governed by the Commodity Exchange Act, not wagers. The company has pressed that claim in multiple jurisdictions. In New York, it sued the state’s gaming commission over event contract rules, arguing the CFTC has exclusive jurisdiction and that state-level enforcement interferes with federal oversight. The complaint framed state actions as a crackdown on sports-related products that blur lines between trading and betting. Industry observers say the outcomes will shape where the boundary lies for platforms operating at the intersection of finance and gaming, with implications for how other consumer trading apps are supervised. The stakes go beyond sports: the same legal logic would influence whether election, weather or pop culture contracts can be offered under a federal umbrella without state gambling licenses.
Courts split: wins in New Jersey, setback in Nevada
Early rulings have gone both ways. In New Jersey, a federal judge temporarily shielded the platform from enforcement, concluding the state could not ban Kalshi from offering sports prediction markets while litigation proceeds. The decision, detailed in a report on the New Jersey case, was one of several instances where courts granted preliminary relief as judges weigh whether these products are swaps or bets. Kalshi has also challenged orders in Maryland and Nevada. In Nevada, the forum most closely associated with U.S. gambling regulation, the case has become a bellwether. A judge initially pledged to move quickly, underscoring the industrywide implications described in coverage of the fast-tracked Nevada judgment. More recently, the tide turned. A federal judge ruled against Kalshi in Nevada, opening the door for regulators to act. As summarized in the ruling against Kalshi in Nevada, the court pointed to markets tied to the timing of football touchdowns and concluded that sports-based event contracts function as bets, not federally regulated swaps, and thus do not fall within exclusive CFTC jurisdiction. Kalshi has filed an emergency motion to halt the order while it appeals, citing the risk of criminal enforcement and disruption to trading.
Kalshi’s rapid expansion into sports and elections
The legal skirmishes follow the company’s push into high-profile markets. Kalshi filed paperwork with the CFTC to list sports predictions and launched sports event contracts in late January with “will team win title” formats. Those offerings arrived as rival platforms also probed the boundary, drawing immediate regulatory scrutiny. The move into sports came on the heels of Kalshi’s victory in a separate contest with federal regulators over election contracts, which helped raise the profile of event markets during the 2024 cycle. In New York, the company’s suit highlighted that regulators in multiple states were taking similar steps to classify sports event contracts as wagers, a position mirrored by Nevada’s recent notice urging prediction markets to obtain gambling licenses. The company’s expansion strategy also underscores why states are acting: sports is a regulated domain with consumer protection expectations built into licensing, compliance and responsible gaming frameworks. State officials argue that skipping that regime creates risks that traditional sportsbooks must mitigate, including controls against underage gambling and problem play.
Kalshi’s partnerships landscape has added urgency. New York’s suit arrived days after news that Kalshi and Polymarket struck a multi-year arrangement with the NHL for data and rights access, a development that further blurs the distinction between financial trading and sports wagering ecosystems. As regulators tighten oversight, leagues and data providers become stakeholders in how these markets are defined and governed.
Enforcement momentum and the federal-state balance
Tennessee’s order echoed the playbooks seen elsewhere: demand a shutdown of sports-linked contracts, void outstanding positions and refund funds, with penalties for noncompliance. That approach is similar to actions that triggered litigation in New Jersey and Nevada. The federal pause in Tennessee resets the timetable and places the dispute on a federal track, where judges have taken divergent views. The outcome will hinge on statutory interpretation of the Commodity Exchange Act and how courts assess the substance of contracts tied to sports outcomes. If judges accept that these are swaps within the CFTC’s ambit, state enforcement campaigns lose force. If courts instead see them as bets, states will have a clearer lane to police them under gambling law.
The Nevada ruling adds weight to the latter view, but conflicting decisions mean no unified national standard has emerged. Legal analysts and industry founders have suggested the question may reach the Supreme Court, a sign of the doctrinal gaps exposed by the growth of event markets. Meanwhile, companies face compliance fragmentation: green lights in some jurisdictions, red lights in others, and ongoing federal litigation that can flip operational status overnight.
What to watch next
Several catalysts will determine the near-term trajectory. Appeals in Nevada could stay enforcement or cement the state’s authority. The Tennessee preliminary injunction hearing will test whether a federal court adopts reasoning closer to New Jersey or to Nevada. New York’s case may refine how courts weigh federal preemption when a state asserts that sports outcomes transform financial contracts into wagers. And continued product innovation—more granular markets, in-game or timing-based contracts—will keep pressure on regulators to draw lines that are clear and enforceable.
For market participants, the stakes are operational and legal. A patchwork of rulings introduces liquidity and counterparty risks if contracts are halted midstream. For regulators and lawmakers, the core question is where consumer protections are best enforced and whether existing federal tools are suited to sports-linked contracts. The broader financial technology sector is watching, too. The answers will inform how products at the edge of trading and gaming are built, governed and sold to the public. In the interim, companies will continue to seek federal court shields, states will test the boundaries of their gambling laws, and the line between swaps and bets will remain the contested ground underneath every new listing.
