In a significant legal development for the prediction market industry, a U.S. federal court in Nashville, Tennessee, has issued an order compelling state regulators to temporarily withdraw a cease-and-desist action against Kalshi, a federally regulated prediction markets platform. The order, issued on March 21, 2025, by Judge Aleta Trauger of the U.S. District Court for the Middle District of Tennessee, grants a preliminary injunction and temporary restraining order against the Tennessee Sports Wagering Council and the state’s attorney general.
The court found that Kalshi "will suffer irreparable injury and loss" from the regulator's actions and is "likely to succeed on the merits of its claims." This ruling allows Kalshi to immediately resume its operations in Tennessee while the court conducts a full review of the case. The legal clash stems from a cease-and-desist letter sent on Friday, January 10, 2026, by the Tennessee Sports Wagering Council to Kalshi, Polymarket, and Crypto.com, accusing them of offering unlicensed sports wagering products and ordering them to void contracts and refund users by January 31, under threat of fines up to $25,000 per offense.
The core of the dispute hinges on whether Kalshi's event contracts—which let users speculate on outcomes of sports and other events—constitute illegal gambling under Tennessee law or are lawful financial derivatives under federal oversight. Kalshi, operating as a Commodity Futures Trading Commission (CFTC)-designated Designated Contract Market (DCM), argues its products are standardized financial instruments for risk management and price discovery, placing them under the "exclusive jurisdiction" of the CFTC and preempting state gambling laws.
This case represents a critical test for federal preemption and the regulatory classification of novel financial products. Kalshi has launched similar lawsuits in other states, with courts in Nevada and New Jersey siding with the company to block state action, while a judge in Maryland denied a similar request. The Tennessee case will proceed to a preliminary injunction hearing scheduled for January 26, 2026, with the final judgment expected to set a nationwide precedent for the prediction market industry.
