Kalshi Faces Renewed Scrutiny in Its Tennessee Legal Battle

Kalshi’s efforts to continue offering sports prediction contracts in Tennessee have encountered a new obstacle as renewed skepticism in federal court may threaten the platform’s nationwide ambitions. Recent proceedings in the dispute between Kalshi and the Tennessee Sports Wagering Council highlighted that the court remains unconvinced that betting on game outcomes falls under federal derivatives law.

Financial “Swaps” Have a Very Specific Definition

Gaming attorney Daniel Wallach highlighted several excerpts from the ongoing legal dispute in Tennessee. US District Judge Aleta Trauger was highly critical of Kalshi’s assertions that sports-related contracts fit within the definition of financial “swaps” under the Commodity Exchange Act. She argued that the current system was established to provide greater transparency into swap trading, not turn them into a wagering instrument.

Judge Trauger examined the concept of “financial consequence,” which determines whether a contract qualifies as a swap. She asked how a basketball player making a three-pointer could generate economic effects typically associated with commodities or financial markets. She compared her example with activities such as ticket sales or sponsorship revenue that have direct commercial implications.

Such inquiries could undermine Kalshi’s legal strategy. The New York-based platform operates under a Commodity Futures Trading Commission license and argues that its event contracts, including those tied to sports outcomes, fall under the agency’s exclusive authority. Tennessee regulators dispute this claim, arguing that the contracts operate as sports bets, which require state licensing.

Kalshi Faces Scrutiny in Several States

The conflict began on January 6 after the Tennessee Sports Wagering Council issued cease-and-desist letters to Kalshi, Polymarket, and Crypto.com. The regulator ordered the platforms to cease all prediction market betting activities in the state. According to the council, the companies offered unlicensed sports betting, failed to make required tax payments, and bypassed consumer safeguards such as age verification.

Kalshi responded within days by filing a lawsuit in federal court. The platform claimed that the state’s actions were an unlawful attempt to intrude on federally regulated activity. On January 12, the court issued a temporary injunction that prevented Tennessee from enforcing its directive until the case was resolved. However, the broader legal landscape has evolved.

In Massachusetts, a state judge ruled that Kalshi cannot offer sports contracts without a state wagering license, dismissing claims that federal oversight was sufficient. Tennessee authorities cited that decision in their efforts to counter Kalshi’s bid for a preliminary injunction. Judge Trauger’s skepticism further highlights that the classification of these contracts is far from settled.