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A federal judge in Tennessee has ruled that Kalshi’s sports event contracts are likely covered by federal commodities law, handing the prediction-market operator a win that lets it keep offering the products in the state for now.
In an order issued on Thursday, 19 February 2026, Judge Aleta Trauger granted Kalshi a preliminary injunction, stopping Tennessee regulators from enforcing state gaming laws against the company while the case moves forward.
The judge said the sports contracts fit the federal definition of “swaps” under the Commodity Exchange Act, pointing to how the Dodd-Frank Act reshaped oversight of derivatives and event contracts.
Are these contracts closer to sports betting or to federally regulated financial products?
Kalshi says its contracts fall under the Commodity Exchange Act and are overseen by the Commodity Futures Trading Commission at the federal level. The judge agreed that Kalshi is likely to succeed on that argument, treating the sports contracts as “swaps” under federal law.
She also drew a clear line between Kalshi’s model and a traditional sportsbook. In her reasoning, Kalshi runs an exchange where users trade with each other, rather than a house setting odds and taking the other side. Kalshi earns revenue by charging fees on trades, not by “winning” against customers.
Tennessee’s attempt to stop the product
The dispute began after the Tennessee Sports Wagering Council sent a cease-and-desist letter dated 9 January 2026, ordering Kalshi to stop offering sports-related contracts to Tennessee residents.
The letter demanded that the positions be voided and that customer funds be returned by 31 January 2026. It also warned of civil penalties that increase with repeat violations: $10,000 for a first violation, $15,000 for a second, and $25,000 for later violations.
Judge Trauger first blocked enforcement with a temporary restraining order in mid-January, finding that Kalshi was likely to succeed on key constitutional and jurisdictional grounds.
The 19 February ruling extends that protection for now.
Kalshi is standing strong on its official memo
Following the Council’s order, Kalshi also sued the Tennessee Sports Wagering Council after the regulator moved to shut down its sports markets.
The case names council chair William Orgel, executive director Mary Beth Thomas, the council itself, and Tennessee attorney general Jonathan Skrmetti, all in their official capacities.
Tennessee argued the contracts amounted to illegal gambling offered without a state licence, raising concerns that users could access sports-style wagering outside the state’s rules.
A wider legal fight continues
Tennessee’s warning was not limited to Kalshi. State officials also sent cease-and-desist letters to Polymarket and Crypto.com over similar sports contracts.
Even with this Tennessee win, the bigger legal battle is still playing out across the country.
In Nevada, regulators filed suit on 18 February 2026 seeking to block Kalshi’s sports-related contracts there, arguing they amount to illegal wagering under state law.
And in Massachusetts, Kalshi has also faced court action over whether it can offer sports event contracts without a state gaming licence.
For the moment, the Tennessee order means Kalshi can keep offering its sports event contracts in the state while the case proceeds.
Source: Reuters
