Tennessee judge backs Kalshi in gambling law clash
A federal judge in Tennessee has granted a preliminary injunction in favour of prediction markets operator Kalshi. This marks a development in the growing legal battle between state regulators and federally regulated exchanges over sports-related event contracts.
In a memorandum issued by the U.S. District Court for the Middle District of Tennessee, Nashville Division, and shared by Gaming lawyer Daniel Wallach on LinkedIn, the court addressed the question of whether state or federal law governs what it described as “a novel form of sports betting”.
“This case concerns whether state or federal law governs a novel form of sports betting. Plaintiff KalshiEX LLC (“Kalshi”) is a federally designated derivatives exchange on which people bet on sports, among other things. Tennessee permits online sports betting, but operators must be licensed, pay taxes and fees, and abide by various restrictions — requirements with which Kalshi does not comply,” the court said.
Tennessee had issued a cease-and-desist letter threatening enforcement action against Kalshi, prompting the company to sue three Tennessee officials in their official capacities, along with the state agency that regulates gambling. Kalshi sought declaratory and injunctive relief, arguing that its event contracts fall under federal oversight.
“Now before the court is Kalshi’s Motion for Preliminary Injunction (Doc. No. 6), which, for the reasons set forth herein, the court will grant as to the individual defendants and deny as to the state agency defendant,” the memorandum continued.
Federal law or state control?
The debate centres on the classification of sports event contracts. At the heart of the case is whether Kalshi’s sports-related event contracts qualify as financial instruments regulated under federal commodities law or as sports betting products subject to state gambling regulation.
Kalshi is registered with the U.S. Commodity Futures Trading Commission (CFTC) as a designated contract market and maintains that its contracts are derivatives governed by federal law. Tennessee regulators, by contrast, have argued that the company is offering sports wagers without a state licence and without complying with the state’s tax and regulatory framework.
Wallach described the ruling as a turning point in Kalshi’s litigation record against state authorities. Posting on LinkedIn, he wrote: “Kalshi’s losing streak vs states (MD, MA & NV) comes to an end in Tennessee, as federal district judge grants Kalshi’s motion for preliminary injunction vs Tennessee. Court finds that sports-related event contracts are ‘swaps’,” he said.
Wallach observed that courts have diverged in their reasoning when assessing prediction market disputes. He said that the decisions in New Jersey and Tennessee have focused narrowly on whether sports contracts meet the technical definition of “swaps,” while rulings in Massachusetts and Maryland have examined congressional intent more broadly. Nevada, he noted, has combined both approaches.
He added that for states, “the lead argument should always be lack of congressional intent”, cautioning that leading with the technical definition of swaps could be counterproductive in light of prior decisions that treated the issue as secondary.
Wider implications for prediction markets
The Tennessee decision forms part of a broader legal confrontation between Kalshi and several U.S. states that have challenged its expansion into sports-related event contracts. While some courts have sided with state regulators, others have shown willingness to consider the federal regulatory framework underpinning Kalshi’s operations.
Tennessee permits online sports betting, but only through licensed operators that comply with age restrictions, taxation requirements and operational controls. Kalshi does not hold a Tennessee sports betting licence, and the company maintains instead that its federal registration is sufficient authority to operate nationwide.
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