A federal judge in Nashville has stepped in to stop Tennessee regulators from going after prediction market company Kalshi, at least for now, intensifying a broader clash over who gets to police this emerging corner of the betting world.
In a 25-page opinion, U.S. District Judge Aleta A. Trauger said Kalshi is likely to win its argument that federal law overrides Tennessee’s attempt to treat its sports event contracts as illegal gambling. She issued a preliminary injunction blocking state officials from enforcing a cease-and-desist letter, though she dismissed the Tennessee Sports Wagering Council itself from the lawsuit on sovereign immunity grounds.
The fight started in early January, when state regulators sent Kalshi a cease-and-desist letter accusing the company of running unlicensed sports betting. Officials demanded that the platform stop offering sports event contracts to Tennessee residents, cancel existing contracts, return customer deposits, and warned of possible civil and criminal penalties if it did not comply.
Kalshi responded by suing to halt enforcement.
In explaining why such emergency relief is difficult to obtain, Judge Trauger wrote, “A preliminary injunction is an extraordinary remedy which should be granted only if the movant carries his or her burden of proving that the circumstances clearly demand it.”
The dispute surrounds whether Kalshi’s contracts qualify as “swaps” under the federal Commodity Exchange Act. The law gives the Commodity Futures Trading Commission (CFTC) “exclusive jurisdiction” over those financial instruments, a view its chair, Mike Selig, reiterated last week.
Judge Trauger said Kalshi is likely to succeed in showing its sports-related contracts fit within that framework. She stressed that the CEA “define[s] ‘swap’ broadly.” Tennessee had argued that contracts tied to the outcome of games do not depend on the “occurrence” of an event. The judge disagreed, reasoning that both the game itself and its result can count as qualifying events under the statute.
Turning to federal preemption, she concluded that Kalshi had demonstrated a likely conflict between state and federal law. Federal rules displace state law when the two “directly conflict,” she wrote, including when compliance would be “impossible,” or when state law “stand[s] as an obstacle to the accomplishment” of Congress’s objectives.
National legal battles against Kalshi expand as Tennessee falters
Tennessee argued it has a compelling interest in shielding consumers, particularly young men and those vulnerable to addiction. The judge acknowledged that concern, citing the state’s view that “[s]ports gaming is highly addictive, particularly among young men, so protecting consumers aged 18 to 20 from exposure to sports gaming is an important state interest.”
Even so, she stressed that her role was narrow. Quoting another federal court, she wrote, “This case is not about whether the Court likes Kalshi’s product or thinks trading it is a good idea. The Court’s only task is to determine what Congress did, not what it could do or should do.”
The ruling adds to a patchwork of cases nationwide. In Nevada, a federal judge recently sent a related dispute involving Kalshi back to state court, declining to keep the matter in federal court. Meanwhile, in Maryland, outside groups have filed an amicus brief backing Kalshi’s position that the CFTC has exclusive authority over its contracts, underscoring how closely the industry is watching these cases. As a result, the company has used the ruling as “supplementary authority” in New Jersey’s own appeal.
Judge Trauger also found that Kalshi faces likely irreparable harm without court intervention. Citing Sixth Circuit precedent, she wrote, “When constitutional rights are threatened or impaired, irreparable injury is presumed.”
As the lawsuit moves forward, Kalshi must post an additional $500,000 bond. For now, Tennessee officials cannot enforce their cease-and-desist order against the company.
Featured image: Kalshi / Canva
The post Federal judge blocks Tennessee from regulating Kalshi prediction market sports contracts appeared first on ReadWrite.
This articles is written by : Nermeen Nabil Khear Abdelmalak
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