Federal Judge Halts Tennessee’s Attempt to Enforce Gambling Laws on Kalshi’s Sports‑Event Contracts
Middle District of Tennessee Judge Aleta Trauger issues a preliminary injunction, allowing the CFTC‑regulated prediction‑market platform to keep offering sports‑related contracts while the underlying preemption case proceeds.
Nashville, Tenn. – February 20, 2026 – A U.S. district judge has temporarily barred the state of Tennessee from applying its gambling statutes to Kalshi, a Chicago‑based operator of prediction markets that has marketed a suite of “sports event contracts.” The ruling, issued by Judge Aleta Trauger of the Middle District of Tennessee, comes as the company continues to challenge state regulators in federal court.
What the Court Decided
The injunction, filed under a docket that is publicly available on CourtListener, prevents identified state officials from:
- Enforcing cease‑and‑desist letters that ordered Kalshi to stop selling sports‑related contracts to Tennessee residents.
- Void existing contracts or demand refunds from users in the state.
In exchange for the relief, Kalshi was required to post a $500,000 bond and agreed to refrain from offering additional contracts that fall outside the court’s scope. The state’s sports‑wagering council was dismissed from the case on sovereign‑immunity grounds.
Legal Reasoning
Judge Trauger concluded that Kalshi is likely to succeed on the merits of its preemption argument. The court held that the company’s “sports event contracts” qualify as swaps under the Commodity Exchange Act (CEA). Because the CEA grants the U.S. Commodity Futures Trading Commission (CFTC) exclusive jurisdiction over swaps, any state attempt to regulate those contracts as illegal gambling would run afoul of the federal conflict‑preemption doctrine.
In short, if a contract is a “swap” under the CEA, the CFTC—not a state gambling commission—has the authority to regulate it. The judge indicated that Tennessee’s gambling statutes, as applied to Kalshi, are therefore likely preempted.
The Broader Context
Kalshi’s fight in Tennessee is part of a nationwide series of lawsuits in which the platform has sought federal protection for its prediction‑market products. The company has previously taken similar actions against regulators in Nevada, New Jersey, and Connecticut, obtaining mixed results. Some state courts have granted preliminary relief, while others have allowed enforcement actions to continue.
The case also coincides with an increasingly assertive stance by the CFTC. In a recent video address, CFTC Chairman Michael Selig announced that the commission has filed an amicus brief defending its “exclusive jurisdiction” over prediction markets and warned state agencies that the CFTC will contest any attempts to undermine its authority.
Analysis
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Regulatory Uncertainty – The decision highlights the unsettled regulatory landscape for prediction markets, which sit at the intersection of traditional gambling law and derivatives regulation. While the CEA provides a clear federal framework for swaps, courts are still interpreting whether modern, event‑based contracts fall within that definition.
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Implications for Crypto‑Adjunct Markets – Many blockchain‑based platforms that issue tokenized prediction contracts look to the Kalshi‑CFTC model as a potential path to legitimacy. An affirmed preemption doctrine could give such projects a federal safe harbor, reducing reliance on a patchwork of state gambling regimes.
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State‑Federal Tension – The ruling underscores the growing friction between state gambling authorities, eager to protect local revenue streams, and federal regulators tasked with overseeing derivatives. As more states examine prediction markets as a source of gambling revenue, further litigation is likely.
- Potential for a Supreme Court Review – Should the preemption question survive the district court’s preliminary injunction and proceed to a full trial, a definitive ruling could eventually reach the appellate level, and possibly the Supreme Court, setting a nationwide precedent.
Key Takeaways
- Preliminary Injunction: Tennessee cannot enforce its gambling laws against Kalshi’s sports contracts while the case is pending.
- Federal Preemption: The court views Kalshi’s contracts as swaps, placing them under CFTC jurisdiction and likely preempting state regulation.
- Bond Requirement: Kalshi must post a $500,000 bond as part of the injunction.
- Broader Legal Battle: This case adds to Kalshi’s multi‑state litigation strategy, aiming to secure a uniform federal regulatory environment.
- CFTC Involvement: The agency is actively defending its exclusive authority over prediction markets, signaling a potential shift in how these products are overseen.
The Tennessee injunction marks a pivotal moment in the ongoing debate over how prediction markets should be regulated in the United States. As the case moves forward, industry participants, regulators, and investors will be watching closely for signals that could shape the future of both traditional and crypto‑based event contracts.
Source: https://cointelegraph.com/news/tennessee-judge-blocks-state-crackdown-on-kalshi?utm_source=rss_feed&utm_medium=feed&utm_campaign=rss_partner_inbound
