Key Insights
- Tennessee ordered crypto platforms to stop sports event contracts and refund users by January
- Regulators say sports event contracts function as wagering under Tennessee law
- Legal battles continue to escalate as companies question the state’s control of prediction markets.
Prediction Markets Face Tennessee Cease-and-Desist Over Sports Contracts
Prediction markets in the United States are facing an increased regulatory challenge following the imposition of cease-and-desist orders by the sports betting authority in Tennessee on multiple crypto-linked platforms.
The action highlights an ongoing legal dispute over whether prediction markets tied to sporting outcomes should be treated as derivative products or as unlicensed sports betting under state law.
Based on public disclosures made by sports betting attorney Daniel Wallach, the SWC ordered the three companies to stop providing sports event contracts to Tennessee residents, terminate all existing contracts, and refund money to customers by Jan. 31, 2026.
The regulator threatened to impose fines of up to $ 25,000 per infraction and potentially take legal action, involving law enforcement in cases that fail to comply.
Prediction Markets Ordered to Halt Sports Contracts in Tennessee
Attorney Daniel Wallach, in an X post, stated that the Tennessee Sports Wagering Council determined that sports event contracts listed by Polymarket, Kalshi, and Crypto.com allow users to wager money on the outcomes of sporting events.
https://twitter.com/WALLACHLEGAL/status/2009765144209821879
The regulator stated that such activity is restricted under Tennessee law to sportsbooks that hold state-issued licenses.
In its cease-and-desist notices, the SWC rejected arguments that labeling these products as “event contracts” removes them from the scope of gambling statutes.
The council stated that the economic substance of the contracts, rather than their naming convention, determines whether they constitute sports wagering.
Consumer Protection and State Authority Drive SWC Enforcement
As part of the rationale, the SWC highlighted that licensed Tennessee sportsbooks are subject to consumer protection requirements, which include age verification, responsible gaming measures, and anti-money laundering measures.
The council stated that these requirements are designed to safeguard users and maintain market integrity, arguing that comparable protections are not present on the prediction market platforms cited in the enforcement action.
Moreover, the regulator maintained that even though Kalshi and Polymarket are registered with the U.S. Commodity Futures Trading Commission, federal oversight does not supersede Tennessee’s authority to regulate sports wagering within its borders.
The SWC asserted that state law governs who may legally offer betting products tied to sports outcomes to residents, regardless of federal commodities registration.
Ongoing Legal Challenges Across Multiple States
The Tennessee action follows similar enforcement efforts in other jurisdictions. Kalshi has already challenged cease-and-desist orders issued by regulators in several states, arguing in court filings that its event contracts fall exclusively under federal commodities law and therefore are subject only to CFTC oversight.
In Connecticut, Kalshi sought a preliminary injunction to block enforcement of a state order requiring it to halt certain offerings.
Wallach disclosed that Connecticut regulators have opposed the motion, arguing that Kalshi cannot demonstrate irreparable harm from stopping what the state characterizes as unlawful conduct.
The state further contended that public policy considerations weigh against granting injunctive relief.
A U.S. federal judge temporarily barred Connecticut from enforcing its order against Kalshi while the court reviews the company’s request for a preliminary injunction.
The ruling granted a short-term pause and established deadlines for filings in January, with oral arguments scheduled for mid-February.
The Connecticut action also named Robinhood and Crypto.com, accusing the firms of offering unlicensed sports wagering through online event contracts.
In addition to Connecticut and Tennessee, Kalshi has also filed cases against regulators in New York, Massachusetts, New Jersey, Maryland, and Ohio.
The cumulative effect of all these cases is the emerging legal dispute over whether prediction markets related to sports are subject to state gambling regulations or federal derivatives regulation.
Prediction Markets Draw Political and Regulatory Scrutiny
Tennessee’s enforcement move arrives amid heightened scrutiny of prediction markets following high-profile trading activity on Polymarket.
According to Clash Report, a trader earned approximately $400,000 by betting that Venezuela’s former president Nicolás Maduro would be out of office by Jan. 31, shortly before U.S. authorities captured him.
Congressman Ritchie Torres introduced the “Public Integrity in Financial Prediction Markets Act,” which would prohibit political insiders from betting on prediction markets.
Separately, Congresswoman Dina Titus raised concerns about Polymarket’s compliance with CFTC regulations and sent a letter to the firm’s chief executive, Shayne Coplan, requesting details about safeguards designed to prevent insider trading and ensure fair market operations.
