Lede
The Tennessee Sports Wagering Council (SWC) has issued a formal order to prediction market platforms Kalshi, Polymarket, and Crypto.com, requiring them to immediately halt the offering of sports event contracts to residents of the state. This regulatory action follows allegations from the council that the platforms have been illegally offering sports wagering products without holding a license issued under the Tennessee Sports Gaming Act. The SWC has explicitly mandated that these companies stop their current sports-related offerings and void all existing contracts entered into by users within the state of Tennessee.
In addition to halting operations, the regulator has established a strict timeline for the return of user capital. The platforms are required to refund all funds currently on deposit to Tennessee-based participants by a deadline of January 31, 2026. This move represents a significant escalation in state-level oversight of prediction markets, which the SWC argues are essentially sports wagering products. While these platforms often categorize their offerings as event contracts, the Tennessee regulator maintains that packaging the products in this manner does not exempt them from existing state gambling statutes. The order emphasizes that Tennessee law reserves the practice of wagering on the outcomes of sporting events exclusively for licensed sportsbooks.
Context
The conflict between state gambling regulators and prediction market platforms centers on the definition of their products and the scope of regulatory authority. Platforms like Kalshi and Polymarket are currently registered with the US Commodity Futures Trading Commission (CFTC), which provides federal oversight for derivatives and commodities. However, the Tennessee Sports Wagering Council maintains that this federal registration does not override the state’s authority to regulate sports wagering within its borders. This jurisdictional dispute has become a central theme in the legal challenges facing the industry.
Tennessee is not the only state to take such action. In Connecticut, the Department of Consumer Protection recently accused Kalshi, Crypto.com, and Robinhood of offering unlicensed sports wagering through online event contracts. While Connecticut regulators attempted to enforce a cease-and-desist order, a US federal judge, Vernon Oliver, recently intervened to temporarily bar the state from enforcing that order. Judge Oliver ruled that Connecticut must pause its enforcement actions while the court considers Kalshi’s request for a preliminary injunction. Kalshi has consistently argued in court that its event contracts fall under federal commodities law and are regulated exclusively by the CFTC, rather than by individual state gambling commissions or consumer protection departments.
Impact
The immediate impact on Kalshi, Polymarket, and Crypto.com involves significant operational and financial risks within the Tennessee market. The SWC has made it clear that failure to comply with its order could result in substantial penalties, including fines of up to $25,000 per offense. Beyond these financial penalties, the regulator warned that continued noncompliance could lead to further legal consequences, including injunctive relief and referrals to law enforcement for investigations into potential illegal gambling operations. This creates a high-stakes environment for the platforms as they decide whether to comply or challenge the state’s jurisdiction.
For users in Tennessee, the order necessitates the voiding of active positions and the eventual withdrawal of deposited funds before the January 31, 2026 deadline. This regulatory stance puts pressure on the platforms to reconcile their business models with state-specific gambling laws, which often have different requirements than federal commodities regulations. The requirement to refund all funds on deposit forces a structured exit from the state’s market. This development mirrors the broader challenges faced by the prediction market sector as it attempts to navigate a complex patchwork of state and federal oversight while maintaining its user base and operational liquidity.
Outlook
The legal battle over prediction markets is rapidly expanding across the United States. Kalshi has already taken a proactive stance by launching lawsuits against regulators in several other states, including New York, Massachusetts, New Jersey, Nevada, Maryland, and Ohio. These legal actions suggest a long-term strategy to establish federal preemption over state-level gambling restrictions. The outcome of these cases will likely determine whether prediction markets can operate uniformly across the country or if they must adhere to varying sets of rules in every individual state.
While the temporary reprieve granted by a judge in Connecticut provides a short-term legal win for Kalshi, the aggressive stance taken by Tennessee’s SWC indicates that many state regulators remain committed to asserting their authority over sports-related contracts. The tension between federal CFTC registration and state-level sports wagering licenses will likely remain the primary point of contention in the coming years. As the 2026 deadline for refunds in Tennessee approaches, the industry will be watching closely to see if other state regulators follow suit or if federal courts intervene to provide a consistent regulatory framework for these emerging financial platforms and their event-based contracts.
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