Tennessee’s legal landscape for sports betting is heating up as prediction markets Kalshi and Polymarket face the state’s scrutiny. In a bold move, the Tennessee Sports Wagering Council sent cease-and-desist letters to these platforms, claiming they are operating unlicensed gambling businesses. This legal tug-of-war brings to the forefront critical questions about the nature of sports-related event contracts and whether they should be classified as federally regulated financial instruments or illegal gambling.
On January 9, 2026, Kalshi, Polymarket, and Crypto.com received the cease-and-desist notice, demanding they cease offering sports-related event contracts to Tennessee residents and void any outstanding trades by January 31. The state asserts that such contracts violate local gambling laws, placing the future of these platforms in jeopardy.
In response to the state’s actions, Kalshi quickly took to federal court, claiming that it operates as a federally regulated entity under the auspices of the Commodity Futures Trading Commission (CFTC). Fortunately for Kalshi, a federal judge in Nashville granted a temporary restraining order on January 12, halting Tennessee’s enforcement while a more thorough hearing on the matter is scheduled for January 26.
This legal clash highlights the complexities of jurisdictional authority as both state gambling laws and federal regulations vie for control over the rapidly evolving world of sports betting and event contracts. Kalshi, designated as a contract market by the CFTC since 2020, insists that its operations fall under federal oversight, arguing that the CFTC holds exclusive jurisdiction over its offerings.
Tennessee’s stance presents a significant challenge to prediction markets. According to the state, any offerings that can be classified as sports betting must comply with its gambling regulations. They allege that platforms like Kalshi are operating outside the law by sidestepping age restrictions, licensing requirements, and consumer protection measures. Thus, the state is positioning itself as the gatekeeper in a critical debate over whether prediction markets can continue to thrive under current laws.
The implications of these legal proceedings extend far beyond Kalshi and Polymarket. A ruling favoring state oversight could drastically alter the landscape for prediction markets in the U.S., defining whether yes/no trades on sports events are legitimate financial products or illicit gambling activities.
Currently, the CFTC maintains a fine line of permitting event contracts that serve genuine economic purposes and do not fall into banned categories, which includes gaming. However, ambiguity persists around whether sports-related contracts align with the agency’s guidelines, especially since the CFTC previously advised that some sports contracts had been self-certified by exchanges without formal approval.
Kalshi recently faced similar concerns in Nevada, where a ruling classified its contracts under state gambling laws. This ongoing appeal has, in turn, galvanized other states to pursue equivalent actions against prediction markets.
Now, Kalshi and Polymarket are caught in a difficult position: comply with the state’s demands or fight back in court. Choosing compliance might mitigate their immediate legal risks, but it could set a damaging precedent undermining the argument that federal law takes precedence over state regulations. Conversely, pursuing litigation may result in steep penalties and a protracted legal battle, leaving platforms like Kalshi scrambling for viable operational strategies.
As January 31 approaches, the implications of Tennessee’s demands loom large for the broader industry, creating a sense of urgency for Kalshi, who is reportedly battling similar challenges across multiple states. The outcome could significantly shape access to prediction markets nationwide or force platforms into a fragmented compliance landscape dictated by the states.
