Kalshi Wins Temporary Legal Halt on Tennessee State Regulatory Action

TLDR

Table of Contents

A federal judge blocked Tennessee from enforcing a ban on Kalshi’s sports contracts.
Kalshi claims only the CFTC can regulate its exchange under federal law.
Tennessee regulators ordered Kalshi and others to refund users or face fines.
Courts in Nevada and New Jersey also sided with Kalshi in similar disputes.

A federal judge has temporarily blocked Tennessee from enforcing a cease-and-desist order against Kalshi, a prediction market platform offering sports event contracts. The ruling allows Kalshi to continue operating in the state while legal proceedings continue. The company claims it is regulated solely by the Commodity Futures Trading Commission (CFTC), not state gambling authorities, setting the stage for a broader legal battle over federal versus state regulatory powers.

Federal Court Grants Temporary Restraining Order

A federal judge in Tennessee has issued a temporary restraining order preventing state officials from taking action against Kalshi, a federally registered prediction market platform. The ruling followed Kalshi’s lawsuit against the Tennessee Sports Wagering Council and the state attorney general after receiving a cease-and-desist order.

On Monday, Judge Aleta Trauger ruled in favor of Kalshi’s motion for a preliminary injunction. She stated that Kalshi “will suffer irreparable injury and loss” and is “likely to succeed on the merits of its claims” if the state continues enforcement. This allows Kalshi to keep operating in Tennessee until the court holds a hearing scheduled for January 26.

Dispute Over Regulatory Authority

The dispute centers around whether Kalshi should be regulated by the federal Commodity Futures Trading Commission (CFTC) or by state gambling authorities. Kalshi argues it operates under the CFTC’s jurisdiction as a federally designated contract market offering event-based derivatives.

According to Kalshi’s lawsuit, “Tennessee’s intent to regulate Kalshi intrudes upon the federal regulatory framework that Congress established for regulating derivatives on designated exchanges.” The company maintains that its event contracts are not sports wagers but legally recognized derivatives regulated under federal law.

State Orders and Legal Consequences

The Tennessee Sports Wagering Council had issued cease-and-desist letters on January 12 to Kalshi, Polymarket, and Crypto.com. The letters accused the platforms of offering unlicensed sports wagering products. The council ordered the companies to void all contracts, refund users by January 31, and threatened fines of up to $25,000 per violation.

Kalshi quickly filed suit in response, targeting the council, its chair William Orgen, executive director Mary Beth Thomas, and Attorney General Jonathan Skrmetti. The company argued that the state’s enforcement was beyond its legal reach due to Kalshi’s federal registration.

Mixed Outcomes in Other States

Kalshi has faced similar challenges in other states. Courts in Nevada and New Jersey previously ruled in Kalshi’s favor, granting injunctions that stopped state regulators from enforcing local gambling laws against the platform. However, a Maryland judge rejected a comparable request, allowing state regulation to proceed there.

These differing outcomes show ongoing legal uncertainty around prediction markets that offer contracts based on sports and other real-world events. Kalshi continues to argue that federal law preempts state-level gambling rules when applied to its platform.

The court’s order in Tennessee remains in effect until at least January 26, when a preliminary injunction hearing will determine the next steps. Until then, Kalshi is free to operate in the state without interference from local regulators.