Prediction Markets Face Legal Crossfire in Tennessee Over Sports Betting Contracts

Kalshi and Polymarket, two federally regulated prediction markets, are locked in a legal standoff with Tennessee regulators over sports-related event contracts. The state's January 9 cease-and-desist order claims these contracts constitute illegal gambling, while the platforms argue they operate under CFTC oversight. A federal judge granted Kalshi a temporary restraining order on January 12, freezing Tennessee's enforcement action.

The clash highlights the tension between state gambling laws and federal commodities regulation. Kalshi's 2020 designation as a CFTC-regulated contract market now faces its first major jurisdictional test. Unsettled trades hang in the balance—platforms must void them by January 31 unless the court intervenes.

Market makers watch closely. The outcome could redefine whether prediction contracts are financial instruments or gambling vehicles—a distinction with Ripple effects across crypto derivatives and event-driven trading.