Tennessee Court Sides with Kalshi on Event Prediction Markets

A federal judge in Tennessee has granted Kalshi a preliminary injunction, stopping officials from imposing sports betting laws on the prediction markets platforms’ sports-event contracts and pursuing action against Kalshi during the case. 

US District Judge Aleta A. Trauger sided with Kalshi, stating that the company would likely prevail in defending its position that the products are swaps under federal law. The decision prevents enforcement under the Tennessee Sports Gaming Act, which oversees the Tennessee sports betting, while litigation proceeds and adds to a growing split among courts reviewing similar disputes.

Several states have challenged sports-event contracts offered by Kalshi and similar platforms, arguing that they constitute unlicensed sports betting. Kalshi has maintained that its contracts are federally regulated swaps, thereby placing them under exclusive oversight by the Commodity Futures Trading Commission (CFTC).

Tennessee regulators previously issued a cease-and-desist letter alleging that Kalshi operated without a state license. Kalshi filed a suit last month seeking declaratory and injunctive relief. Addressing the state’s argument that the contracts depend on the outcome rather than the occurrence of an event, the court wrote that "the outcome of an event can be an occurrence, too." 

Judge Trauger also accepted Kalshi’s position that "downstream consequences" of game results, including increased merchandise sales after a team victory, satisfied the federal requirement that swaps relate to potential financial effects.

The court further held that Kalshi could not comply with both state licensing requirements and CFTC rules simultaneously without frustrating uniform federal regulation of derivatives markets.

The ruling diverged from decisions in Maryland and Nevada, where injunctions were denied, while a federal court in New Jersey granted similar relief. Motions remain pending in Ohio, New York, and Connecticut.

CFTC files amicus brief and signals broader defense

The Tennessee decision came as the CFTC moved to reinforce its authority in related litigation, reasserting its right as the only agency with authority over prediction market apps.

The agency filed an amicus brief in the Ninth US Circuit Court of Appeals supporting Crypto.com in a legal battle with the Nevada Gaming Control Board and stated it would support prediction markets in the nearly 50 active legal cases against them. 

CFTC Chairman Michael Selig wrote in a Wall Street Journal opinion piece this week that the regulator has authority over prediction markets and that it is the CFTC, not states, that can determine whether prediction markets constitute gambling. 

Selig has said that the CFTC is preparing clearer rules for prediction markets and will revisit its approach to federal and circuit court cases. "Where jurisdictional questions are at issue, the Commission has the expertise and responsibility to defend its exclusive jurisdiction over commodity derivatives," he said.

On Tuesday, in a social media statement, Selig said the agency’s message to challengers was direct: "We will see you in court."

Utah Governor Spencer Cox has already responded to Selig’s statement, stating that he will use every resource within my disposal as governor of the sovereign state of Utah, and under the Constitution of the United States to beat you in court.”