A U.S. federal judge has temporarily blocked Tennessee from enforcing an order that would have forced prediction market operator Kalshi to shut down its sports-related contracts in the state. The decision pauses a cease-and-desist directive while the court weighs a broader legal question with national implications: whether Kalshi’s federally regulated platform is protected from state gambling laws.
The ruling, signed Monday, halts enforcement actions by the Tennessee Sports Wagering Council and the state attorney general. Regulators had ordered Kalshi, along with Polymarket and Crypto.com, to stop offering sports event contracts to Tennessee residents. The order also required companies to void existing contracts and refund customer deposits by Jan. 31.
Tennessee officials warned that failure to comply could lead to fines of up to $25,000 per violation and potential referrals to law enforcement. The court’s intervention now freezes those penalties, at least temporarily, giving Kalshi room to continue operating in the state while the legal dispute plays out.
A clash between state and federal oversight
Kalshi argues that Tennessee’s actions overstep state authority and conflict with federal law. In its federal complaint, the company framed the dispute as a jurisdictional battle between state gaming enforcement and federal commodities regulation.
Kalshi operates as a Commodity Futures Trading Commission regulated exchange, offering event-based contracts that allow users to trade on the outcome of future events, including sports. The company contends that these contracts fall squarely under the CFTC’s exclusive jurisdiction, as outlined in the Commodity Exchange Act.
According to Kalshi, Tennessee’s enforcement effort is both field-preempted and conflict-preempted by federal law. In simple terms, the company says states cannot regulate in an area that Congress has reserved for federal oversight, nor can they impose rules that interfere with federally approved markets.
Tennessee regulators see it differently. They argue that sports-based contracts function like unlicensed sports betting and therefore fall under state gambling laws. That disagreement is now at the heart of a growing legal fight across the country.
States push back on prediction markets
Tennessee is far from alone in challenging Kalshi’s sports markets. State-level scrutiny has been building for more than a year as prediction markets expand into areas traditionally regulated as gambling.
A legal analysis published in November 2025 by Willkie Farr and Gallagher LLP identified nine states that had issued cease-and-desist letters to Kalshi. Those states include Arizona, Illinois, Maryland, Michigan, Montana, Nevada, New Jersey, New York, and Ohio. Tennessee’s action added another layer to that pressure.
Connecticut regulators have also issued cease-and-desist orders not only to Kalshi, but to Robinhood and Crypto.com, alleging illegal sports wagering. In that case, Kalshi similarly obtained temporary relief, signaling a pattern of courts being willing to pause enforcement while legal questions are reviewed.
The result is a patchwork of legal outcomes that highlights the uncertainty surrounding prediction markets. Some courts have shown sympathy for Kalshi’s federal preemption arguments, while others have sided with state regulators.
Courts split on sports contracts
The legal landscape remains unsettled. In late 2025, a federal judge in Nevada ruled that Kalshi must comply with state gaming regulations, rejecting the company’s claim that CFTC oversight shields it from state control. That decision marked a setback for Kalshi and underscored the risk of inconsistent rulings across jurisdictions.
Kalshi has previously sued gaming authorities in Nevada and New Jersey over similar cease-and-desist notices, signaling its willingness to challenge state actions aggressively. With Tennessee now added to the list, the issue is moving closer to becoming a nationwide test of how sports-based event contracts are classified under U.S. law.
What comes next
For now, the Tennessee ruling offers Kalshi a temporary win, but it does not resolve the underlying legal question. As courts continue to grapple with whether prediction markets are regulated derivatives or unlicensed sports betting, companies, regulators, and users are left navigating an uncertain regulatory environment.
The outcome of these cases could shape the future of prediction markets in the United States, determining whether they remain primarily under federal oversight or become subject to a patchwork of state gambling rules.
