Tennessee regulator targets prediction markets in latest cease-and-desist orders

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2025/04/30: Michigan Gaming Control Board targets Panama-based operators with cease-and-desist orders 2025/12/04: Connecticut orders prediction markets to stop offering sports contracts 2025/09/21: Sweepstakes operator Sportzino exits Tennessee after cease-and-desist order 2025/05/08: BetUS latest to receive Michigan cease-and-desist

The Backstory

Why Tennessee escalated now

Tennessee’s cease-and-desist orders to prediction market operators arrive after months of stepped-up enforcement aimed at anything that looks like sports betting outside the state’s licensed ecosystem. The Sports Wagering Council has been methodically cutting off unlicensed options, from offshore books to sweepstakes-style sites, arguing that consumer protections and tax obligations apply regardless of branding or tech wrappers. That approach produced visible results when social gaming site Sportzino exited the state following a warning, as detailed in coverage of Sportzino’s shutdown. The agency reinforced the move on its own site, noting Sportzino is no longer offering services in Tennessee.

Against that backdrop, the new orders push past familiar offshore targets and into a contentious corner of the market: federally registered prediction exchanges offering sports event contracts. The letters followed public disclosure by gaming attorney Daniel Wallach, who posted the documents on X. His thread highlighted the scope of the demands, including voiding contracts and returning customer funds by month’s end. For Tennessee, the logic is consistent with earlier actions — the state argues these products function as sports betting under its code and must meet local consumer-protection and tax standards. For the exchanges, the orders sharpen a jurisdictional fight over whether federal market designation preempts state gambling law.

A coordinated playbook beyond one state

Tennessee is not operating in a vacuum. Michigan has run one of the most aggressive state-level crackdowns on unlicensed online gambling, building a cadence of cease-and-desist actions that target both offshore casinos and sportsbooks taking bets from state residents without authorization. In June, the Michigan regulator moved in bulk, issuing orders to 11 illegal online casinos it said were exposing players to unfair play, withheld winnings and weak data safeguards. That effort reinforced a message regulators have repeated for months: if a site takes money from residents without a license, it risks swift enforcement.

The Michigan Gaming Control Board then widened its perimeter with targeted actions against brands marketing directly to U.S. players. It warned Panama-based operators in a move that drew a line through multiple product types — sports, casino, horse racing and politics — citing violations of state law and urging bettors to use vetted sites. The agency’s order to SportsBetting.ag and BetOnline gave operators two weeks to halt activity or face action with the attorney general. Additional cases followed, including a notice to Costa Rica-based BetUS and a later tranche against You Wager, Bet Pop Casino, Wager 7 and Discount Wager. The cadence is the point: multiple rounds, short deadlines and the threat of escalation signal that regulators plan to make examples of operators seen as ignoring state boundaries.

From sweepstakes to “markets,” the lines keep shifting

One reason Tennessee’s latest move matters is that it targets an area operators have cast as financial products rather than gambling. Sweepstakes sites argued they were offering promotional games rather than wagers; prediction exchanges argue they are trading in event contracts on federally supervised venues. Regulators have pushed back on both claims. In Tennessee’s view, if consumers are staking value on the outcome of sports competitions and the product serves as a substitute for regulated betting, then state rules apply. That framing was evident in the state’s earlier sweepstakes action. In reporting on Sportzino’s exit, officials stressed the “taxable privilege” of offering wagers and the lack of consumer protections at unlicensed outlets, language that foreshadowed this week’s broader market reach into exchanges.

Michigan’s pattern offers the same lesson. The regulator’s orders against Panama-based sites and BetUS treated varied products — esports, live events, slots, poker and horse racing — as a single compliance issue: licensing and consumer safety. By bundling disparate products under the same enforcement umbrella, states are signaling they will judge offerings by function and risk, not by marketing label.

Jurisdiction clash: federal designations meet state police powers

The core dispute with prediction exchanges turns on whether federal commodity oversight can insulate event contracts from state gambling law. The operators targeted by Tennessee have registration or designation at the Commodity Futures Trading Commission and argue that status makes their markets national by design and outside state-by-state gaming approvals. State regulators counter that most consumer-facing bets — especially on sports — fall under state gambling statutes crafted to address addiction risks, integrity controls and tax policy. Courts have split on the boundary, and the issue has ricocheted across multiple jurisdictions.

That legal ambiguity is why the Tennessee letters were drafted to force a quick test. By ordering immediate shutdowns, refunds and contract voiding, the Council invited a courtroom decision rather than a prolonged back-and-forth. The move mirrors Michigan’s strategy of tight deadlines and the threat of attorney general action. It also raises financial stakes for the exchanges: unwinding contracts and pausing U.S. activity can dent liquidity and momentum at a time when some operators, after acquisitions and compliance changes, have tried to expand access to American users.

Consumers, sportsbooks and the tax base at risk

For licensed sportsbooks, the enforcement wave shores up a regulatory moat around legal operators that pay taxes, verify identity, monitor for problem gambling and maintain dispute processes. Tennessee’s market is meaningful — wagers through licensed books totaled $5.6 billion in the last tax year, according to the state — and regulators argue that leakage to unlicensed or quasi-licensed venues erodes both consumer protections and public revenue. Michigan has emphasized similar concerns, warning that unregulated sites may deny withdrawals, impose opaque playthrough rules or mishandle personal data, as laid out in its mass action against 11 illegal online casinos.

For consumers, the difference shows up when something goes wrong. Licensed books answer to state agencies with audit authority and complaint procedures. Offshore and unlicensed platforms answer to no one locally, and prediction exchanges in a legal gray zone can leave users unsure which regulator will take their call. That uncertainty is part of the leverage states are applying: by creating a credible risk that balances will be frozen or contracts voided, officials hope to steer bettors toward regulated channels.

What to watch next

Expect a rapid legal response from at least one exchange, setting up an early test of whether a federal designation can preempt state-level gambling enforcement on sports event contracts. The Tennessee letters, publicized in Wallach’s X thread, were written to force clarity on that question. Parallel actions in Michigan show states will keep pressing, operator by operator, while courts sort the jurisdictional lines.

The broader industry stake is whether prediction markets can coexist with state-regulated sportsbooks or must route through the same licensing frameworks. If courts side with states, exchanges face a patchwork of approvals that could limit scale. If federal status prevails, states may shift to consumer-protection rules that stop short of licensing. Either way, the enforcement arc in Tennessee and Michigan suggests the era of operating in the gaps is closing.