Kalshi Secures Temporary Protection as Tennessee Court Halts Action Against Sports Markets

A federal judge has issued a temporary halt on Tennessee officials from enforcing a cease-and-desist order against the prediction market operator Kalshi, as per court documents filed on Monday.

Key Takeaways

Kalshi received a temporary restraining order (TRO) that prevents the Tennessee Sports Wagering Council and state attorney general from enforcing state gambling laws.
U.S. District Judge Aleta Trauger believes Kalshi is likely to succeed in its claims and would suffer significant harm if the state moved forward.
The cease-and-desist order mandated Kalshi and others to stop offering sports contracts, but Kalshi challenged this in federal court.
The ongoing legal discourse addresses whether sports-based contracts should be classified as federally regulated commodities or state-licensed gambling products.

Kalshi wins Tennessee court shield over sports betting crackdown

Temporary Enforcement Halt

U.S. District Judge Aleta Trauger granted Kalshi a temporary restraining order (TRO) that stops the Tennessee Sports Wagering Council and the state attorney general from applying state sports betting and gambling laws to the platform while the legal proceedings are ongoing. This ruling pauses Tennessee's enforcement actions until at least January 26, when a hearing for a preliminary injunction is set to take place.

Background on the Case

In her ruling, Judge Trauger indicated that Kalshi is likely to prevail on the merits of its claims and would face irreparable injury if the state were allowed to proceed with its enforcement actions. This TRO follows an enforcement directive issued by Tennessee regulators days prior, which instructed Kalshi, along with prediction market Polymarket and crypto exchange Crypto.com, to cease offering sports-related event contracts to state residents, cancel all current contracts, refund deposits, and cease any in-state activity by January 31.

Regulators warned that failure to comply could result in civil penalties of up to $25,000 for each violation, as well as potential criminal referrals for aggravated gambling promotion.

Legal Arguments and Variability

Kalshi contested the cease-and-desist order in federal court, arguing that federal derivatives laws take precedence over state gambling statutes. Their position is grounded in the fact that Kalshi operates as a designated contract market (DCM) regulated by the U.S. Commodity Futures Trading Commission (CFTC). The company has presented similar arguments in different states where regulators seek to classify sports event contracts as gambling products, rather than federally regulated derivatives.

While Judge Trauger’s ruling does not resolve the preemption issue, it currently shields Kalshi from enforcement actions in Tennessee.

Previously, federal courts in New Jersey and Nevada have granted preliminary injunctions blocking those states from imposing gambling laws on Kalshi. Conversely, a Maryland court denied similar relief last year, allowing regulators to proceed with their enforcement activities.

These contradictory court rulings highlight the ongoing legal uncertainties as courts assess whether sports event contracts should be classified as commodities subject to federal oversight or as gambling instruments under state regulations.

The CFTC maintains that Kalshi's operations come under its exclusive authority as a DCM. Meanwhile, several states, including Tennessee, have raised concerns about consumer protection, market integrity, and the possible bypassing of state licensing requirements, as outlined in Tennessee's cease-and-desist order.

Moving Forward

The TRO allows Kalshi to continue offering its products to Tennessee residents as the court examines the case. The hearing on January 26 will determine whether the TRO will be converted into a more permanent preliminary injunction.