A federal court has temporarily blocked Tennessee regulators from taking action against Kalshi, a leading prediction market platform. Judge Aleta Trauger of the U.S. District Court for the Middle District of Tennessee issued a temporary restraining order (TRO) on January 12, preventing the Tennessee Sports Wagering Council (SWC), its chairman and executive director, and the state attorney general from enforcing state gambling laws against Kalshi. The order is in place until a preliminary injunction hearing scheduled for January 26.
The SWC had previously issued cease-and-desist demands to Kalshi, Polymarket, and Crypto.com, ordering them to stop offering sports contracts to Tennessee residents, void open contracts, and refund customer deposits by January 31. The council warned of potential fines of up to $25,000 per violation and possible criminal referrals for aggravated gambling promotion for noncompliance.
Kalshi challenged the order in federal court, arguing that as a U.S. Commodity Futures Trading Commission (CFTC)-regulated designated contract market, it falls under the CFTC's exclusive jurisdiction and is shielded from state gambling laws by federal preemption. Judge Trauger's order acknowledges that Kalshi is likely to succeed on its claims and would suffer irreparable harm if Tennessee enforced its sports wagering and gambling statutes against the company.
This legal battle is part of a broader conflict between prediction markets and state gaming regulators. Kalshi has faced similar challenges in other states, including Maryland, Nevada, Ohio, New York, and Connecticut. In August, a federal judge in Maryland denied Kalshi's request for a preliminary injunction, stating that Kalshi failed to clearly show that federal law supersedes Maryland's state gambling laws. Similarly, a federal judge ruled in November regarding the Nevada case that Kalshi must follow state gaming regulations. However, federal courts in New Jersey and Nevada have previously granted Kalshi preliminary injunctions blocking state enforcement. A Connecticut court also temporarily paused enforcement in December while the case proceeds.
The Tennessee SWC contends that the platforms' offerings qualify as sports wagering and therefore require licensing, consumer protections, and tax payments under Tennessee law. Kalshi maintains that its platform is federally regulated and not subject to state gambling laws. The eventual resolution of these disputes could significantly impact whether platforms can offer event-based contracts nationwide without state gaming licenses or whether state gambling laws will prevail over federal derivatives regulation. This case marks Polymarket's first major state enforcement since the crypto-based platform re-entered the U.S. earlier this year.
The court's decision allows Kalshi to resume operations in Tennessee pending further legal review. A hearing for a preliminary injunction is scheduled for January 26 to further examine the matter.
