A US federal judge in Tennessee temporarily blocked the state from enforcing its gambling laws against prediction markets operator Kalshi’s sports event contracts. 

The ruling, issued by Judge Aleta Trauger of the US District Court for the Middle District of Tennessee on Thursday, allows Kalshi to continue offering sports-related event contracts to users in the state while its lawsuit against Tennessee regulators proceeds.

Trauger found that Kalshi is likely to succeed on the merits of its claim that federal commodities law preempts Tennessee’s attempt to regulate its sports markets as illegal gambling. 

The court concluded that Kalshi’s sports event contracts are “swaps” under the Commodity Exchange Act, over which the law grants the US Commodity Futures Trading Commission (CFTC) exclusive jurisdiction, and held that Tennessee’s enforcement efforts are likely preempted under conflict preemption principles. 

The injunction applies to the identified state officials, while the Tennessee Sports Wagering Council itself was dismissed on sovereign immunity grounds, and Kalshi was ordered to post a $500,000 bond.

Long-running clash with states

The Tennessee case marks another chapter in a broader clash over how to treat event contracts in the United States.

An earlier temporary restraining order from Trauger had already paused enforcement of Tennessee’s cease-and-desist letter, which alleged that Kalshi was operating unlicensed sports wagering, ordered it to stop offering sports event contracts to customers in Tennessee, void those contracts and refund deposits, and threatened fines and further legal action. 

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Kalshi has similarly gone to federal court in multiple states, including Nevada, New Jersey, and Connecticut, over cease-and-desist actions targeting its event markets, with courts reaching divergent conclusions on whether to grant preliminary relief.

CFTC steps in to defend prediction markets

​The injunction also lands against a shifting federal backdrop, as the CFTC moves to assert primacy over prediction markets.

In a video message on Tuesday, CFTC Chair Michael Selig said the agency had filed a friend-of-the-court brief to defend its “exclusive jurisdiction” over prediction markets, warning state authorities that the commission would meet them in court if they tried to undermine federal oversight of these derivative markets.

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