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Tennessee’s legal effort to force prediction market operator Kalshi out of the state has hit an early roadblock recently.
A federal judge has issued a temporary order stopping state regulators from enforcing a cease-and-desist notice that would have shut down Kalshi’s sports-based contracts. The ruling keeps the platform live in Tennessee while the court decides whether Kalshi’s federally regulated products fall outside state gambling law.
U.S. District Judge Aleta Trauger granted the temporary restraining order on Monday, blocking the Tennessee Sports Wagering Council and the state attorney general from moving forward with enforcement while the case is heard.
A fast-moving fight for the new year
The dispute started just days earlier, when Tennessee regulators ordered Kalshi, along with Polymarket and Crypto.com, to stop offering sports event contracts to residents. The state told the companies to void open positions, refund customer funds, and shut down in-state activity by Jan. 31.
Regulators warned that failure to comply could result in civil fines of up to $25,000 per violation and possible criminal referrals related to illegal gambling promotion.
However, Kalshi did not wait for the deadline. The company went straight to federal court, asking a judge to intervene before the state could take action.
Trauger agreed that the situation called for an immediate pause.
In her order, she said Kalshi had shown it was likely to succeed on key legal arguments and would face serious harm if Tennessee were allowed to enforce its gambling laws against the platform before the court could weigh the case.
The company says it is not a sportsbook or a gambling site. It is a regulated financial exchange
Kalshi operates as a designated contract market overseen by the U.S. Commodity Futures Trading Commission. On its platform, users buy and sell contracts tied to real-world events, including sports results. Those contracts settle based on what actually happens, similar to how futures or options settle in traditional markets.
Because of that structure, Kalshi argues that only the CFTC has the power to regulate it. State gambling laws, it says, are preempted by federal law when it comes to federally approved derivatives.
Tennessee lawmakers, however, see it very differently. State regulators say contracts tied to sports outcomes look and act like sports betting, regardless of how they are labeled. From their view, that puts the activity squarely within the state’s gambling rules.
With the two sides in the right, legally, Trauger’s order does not decide who is right. It simply freezes the status quo until the court can take a deeper look.
The Tennessee fight is part of a much larger legal battle now playing out across the country
As prediction markets have expanded into sports, elections, and other headline-driven events, they have drawn increasing attention from state gaming regulators. Several states have moved to block Kalshi or similar platforms, arguing that the contracts amount to unlicensed wagering. And, Kalshi has responded with lawsuits.
On the other hand, Federal judges in New Jersey and Nevada have already granted Kalshi preliminary injunctions, keeping state regulators from enforcing gambling laws against the platform while those cases move forward. Those rulings gave Kalshi a boost and signaled that some courts are open to its federal preemption argument.
But not every judge has agreed. Last year, a Maryland court refused to block state enforcement, allowing regulators there to proceed against Kalshi.
Kalshi can keep offering its sports contracts to Tennessee users
In Tennessee, the temporary restraining order sets the stage for a more detailed court fight. A hearing on a possible preliminary injunction is scheduled for Jan. 26. At that point, the judge will decide whether the state should remain blocked from acting while the case moves toward a final outcome.
Trauger’s order suggests that, at least for the moment, the federal court is not ready to let Tennessee settle that issue on its own.
Source: Coin Desk
