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A federal judge has stepped in to temporarily block Tennessee regulators from enforcing a cease-and-desist order against prediction market operator Kalshi, setting up another major chapter in the growing legal fight over whether sports event contracts count as gambling or federally regulated financial products.
The ruling gives Kalshi breathing room for now, while raising bigger questions about how far state gaming regulators can go when federal oversight is already in place.
A Sudden Stop to State Enforcement
On January 12, U.S. District Judge Aleta A. Trauger issued a temporary restraining order preventing the Tennessee Sports Wagering Council from enforcing state gambling laws against Kalshi’s sports-related contracts.
The order blocks Tennessee from applying both its sports wagering statute and its broader illegal gambling laws to Kalshi while the case plays out. A hearing on whether the order should be extended into a preliminary injunction is scheduled for January 26.
In her ruling, Judge Trauger said Kalshi is likely to succeed on the merits of its claims and would suffer irreparable harm if Tennessee were allowed to move forward with enforcement before the court resolves the dispute.
What Sparked the Lawsuit
The legal clash began on January 9, when the Tennessee Sports Wagering Council sent Kalshi a cease-and-desist letter demanding the company immediately stop offering sports event contracts to customers in the state.
Regulators warned that failure to comply could lead to fines, injunctions, and possible referral to law enforcement. Tennessee argued that Kalshi’s contracts function like unlicensed sports betting and violate state rules, including age restrictions.
Kalshi responded the same day by filing a federal lawsuit, arguing that Tennessee was overstepping its authority.
Kalshi’s Federal Law Argument
At the center of Kalshi’s case is federal preemption. The company says it operates as a federally regulated derivatives exchange under the Commodity Exchange Act and is subject to the exclusive oversight of the Commodity Futures Trading Commission.
Kalshi maintains that its sports event contracts were listed through the CFTC’s self-certification process and reviewed by the agency in 2025 without being blocked. From the company’s perspective, only the CFTC has the power to determine whether those contracts should be deemed gaming or contrary to the public interest.
That framework, Kalshi argues, leaves no room for states to apply their own sports betting laws to a federally regulated exchange.
A Missed Chance to Avoid Court
Court filings and public disclosures suggest Kalshi tried to head off litigation before Tennessee took action. Emails shared publicly by gaming attorney Daniel Wallach show Kalshi’s counsel reaching out to Tennessee officials days before the cease-and-desist was issued.
Those messages pointed to ongoing discussions with regulators in other states and suggested some jurisdictions were taking a wait-and-see approach as similar cases move through federal courts. Tennessee declined to offer assurances or schedule a substantive meeting, issuing its enforcement letter three days later.
Part of a National Legal Tug-of-War
Tennessee is far from alone in challenging prediction markets. Kalshi is currently facing pushback from multiple states that view sports event contracts as unlicensed wagering. Results have been mixed so far.
Federal courts in New Jersey and now Tennessee have sided with Kalshi at the early stages, citing likely federal preemption. A Nevada judge reached the opposite conclusion late last year, ruling that state gaming laws could apply. That decision is currently under appeal.
The January 26 hearing will determine whether Tennessee remains sidelined or gets the green light to resume enforcement. Either way, the broader question remains unresolved, leaving prediction markets and regulators on a legal collision course that is far from over.
