Prediction Markets: Kalshi Scores Early Victory In Tennessee Federal Court

By Bill Speros

Jan 13th, 2026 2:18 PM EST

Prediction market Kalshi scored its first legal victory of 2026 when a U.S. District Judge in Tennessee granted the platform temporary restraining order in its battle with state gaming regulators.

U.S. District Judge Aleta Trauger issued the order late Tuesday. It allows the platform to continue trading sports events contracts while its legal case against the Tennessee Sports Wagering Council continues. The state gaming regulatory body sent “cease-and-desist” letters last week to Kalshi, Polymarket and crypto.com. The letters demanded that the platforms stop offering sports-related trades in Tennessee, and refund all deposits by January 31.

The state argued that Kalshi and the other top prediction markets violated state gaming laws by illegally accepting sports bets despite having federal regulatory approval. The TSWC threatened fines of up to $25,000 per violation.

“As other courts have recognized, Kalshi is a regulated, nationwide exchange for real-world events, and it is subject to exclusive federal jurisdiction. It's very different from what state-regulated sportsbooks and casinos offer their customers. Tennessee has nevertheless sought to regulate Kalshi under state law. It sent us a cease-and-desist letter earlier today, and we have now brought suit in federal court to stop this unlawful attempt.” Kalshi said in a statement to Bookies.com Friday.

Following a path it has used elsewhere – with varying degrees of success – Kalshi countersued the state in federal court, this time in the Middle District of Tennessee, given that its regulated by the Commodity Futures Trading Commission and not any state agency.

In its suit against both the TSWC and the attorney general, Kalshi argued that it “endeavored in good faith to reach an accommodation with Tennessee “over the past several months.”

Judge Says Kalshi “Is Likely To Succeed”

In issuing her temporary restraining order, Judge Trauger wrote that that Kalshi is “likely to succeed on the merits of its claim.” She added its rights would be violated. And that Kalshi would suffer “irreparable injury” if the cease-and-desist order was enforced prior to a hearing on a preliminary injunction hearing.

That hearing has been scheduled for Monday, January 26, at 5 p.m. local time.

The timing is beneficial for Kalshi. It allows the site to continue offering sports event contracts through the NFL Divisional Playoffs, the College Football National Championship Game between Miami and Indiana on Monday, and the AFC and NFC Championship Games on Jan. 25.

Since Kalshi self-certified itself to take sports event contracts ahead of Super Bowl 59 a year ago, the platform has seen sports-related trades consume up to 90% of its trading volume.

Lawsuits Involving State Regulators & Kalshi

Kalshi and other prediction markets are now fighting on multiple legal fronts. State regulators, tribal interests, and private plaintiffs challenge whether event-based contracts qualify as federally regulated financial products or illegal sports betting dressed up as derivatives.

At the center of every case is the same question: who’s in charge?

Kalshi maintains its contracts fall exclusively under the authority of the CTFC, arguing that federal oversight preempts state gambling laws. State regulators largely disagree — and courts so far have offered no uniform answer.

Kalshi has responded to cease-and-desist orders by suing regulators in several states, producing a patchwork of rulings that underscore the uncertainty surrounding prediction markets.

State-By-State Prediction Markets Litigation Update

• Tennessee: A federal judge granted Kalshi a temporary order blocking state enforcement while the case proceeds, giving the company an early procedural win.
• Nevada: Kalshi initially secured a temporary injunction preventing enforcement. That ruling was later lifted, clearing the way for Nevada regulators to resume action against the platform.
• New Jersey: A federal district court initially sided with Kalshi and blocked state enforcement. The case is now on appeal before the Third Circuit. It remains one of the most closely watched tests of federal preemption.
• Maryland: A judge denied Kalshi’s request for preliminary relief. The court ruled that federal law does not override the state’s authority to regulate gambling. Kalshi has appealed the decision.
• Massachusetts: The state attorney general sued Kalshi for allegedly offering unlicensed sports wagering. A federal court sent the case back to state court, where it remains ongoing. A district court judge is expected to rule soon on whether the platform could be geofenced out of the Commonwealth.
• New York, Connecticut, Ohio, Illinois, Montana, Arizona, South Carolina, Kentucky, and Georgia: Kalshi has either received cease-and-desist letters or has active litigation pending. Regulators in those states examine whether prediction markets cross the line into illegal gambling.

The Bigger Picture: All Roads Lead To SCOTUS/Congress

The mixed rulings highlight the unresolved tension between federal commodities law and state gambling statutes — a fault line that prediction markets continue to exploit while regulators scramble to respond. Until the Supreme Court either takes the case or allows a federal appeals court ruling to stand — or Congress draws a clear boundary — Kalshi’s state-by-state legal battles are likely just the beginning.

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