Kalshi wins temporary shield as Tennessee court halts crackdown on sports markets

Source: Cryptonews Original Title: Kalshi wins temporary shield as Tennessee court halts crackdown on sports markets Original Link:

Overview

A federal judge has temporarily blocked Tennessee officials from enforcing a cease-and-desist order against prediction market operator Kalshi, according to court documents filed Monday.

U.S. District Judge Aleta Trauger granted Kalshi a temporary restraining order (TRO) that bars the Tennessee Sports Wagering Council and the state attorney general from applying state sports betting and gambling statutes to the platform while litigation continues. The ruling pauses Tennessee’s enforcement effort until at least Jan. 26, when a preliminary injunction hearing is scheduled.

Kalshi halted in Tennessee

In her order, Trauger stated that Kalshi is likely to succeed on the merits of its claims and would face irreparable harm if the state were allowed to proceed.

The TRO follows an enforcement action issued by Tennessee regulators days earlier. The Tennessee Sports Wagering Council instructed Kalshi, prediction market Polymarket, and a certain major crypto exchange to stop offering sports-related event contracts to state residents, void all open contracts, refund deposits, and wind down all in-state activity by Jan. 31.

Regulators warned that noncompliance could lead to civil penalties of up to $25,000 per violation and criminal referrals for aggravated gambling promotion, according to the order.

Federal vs. State Authority

Kalshi challenged the order in federal court, arguing that federal derivatives law preempts state gambling statutes because the company is a U.S. Commodity Futures Trading Commission (CFTC)-regulated designated contract market (DCM). The company has made similar arguments in multiple states as local regulators seek to classify sports event contracts as gambling products rather than federally overseen derivatives.

Trauger’s ruling does not settle the preemption question but temporarily shields Kalshi from Tennessee’s enforcement effort.

Federal courts in New Jersey and Nevada have previously granted preliminary injunctions blocking those states from enforcing gambling laws against Kalshi. However, a Maryland court denied injunction relief last year, allowing regulators to move forward with enforcement.

The diverging outcomes reflect an unsettled legal environment, with courts evaluating whether sports-based event contracts should be treated as commodities subject to federal regulation or as gambling instruments within state jurisdiction.

Regulatory Divide

The CFTC has maintained that Kalshi’s operations fall under its exclusive purview as a DCM, while several states have expressed concerns about consumer protection, market integrity, and potential circumvention of state licensing frameworks, according to Tennessee’s cease-and-desist order.

The TRO preserves Kalshi’s ability to continue offering products to Tennessee residents while the court evaluates the case. The Jan. 26 hearing will determine whether the TRO becomes a longer-lasting preliminary injunction.