Tennessee Orders Kalshi, Polymarket, and Crypto.com to Stop Sports Betting Contracts

Tennessee became the latest state to challenge prediction market platforms on January 9, 2026, when its sports betting regulator ordered three major operators to immediately halt sports-related contracts for state residents.

The Tennessee Sports Wagering Council sent cease-and-desist letters to Kalshi, Polymarket, and Crypto.com, marking a significant escalation in the nationwide battle between state gambling authorities and federally regulated prediction markets.

The orders demand that all three platforms stop offering sports event contracts to Tennessee customers, void existing contracts, and refund all customer deposits by January 31, 2026. Sports betting attorney Daniel Wallach first reported the enforcement action on social media, stating that “lawsuits are imminent.”

Tennessee’s Case Against Prediction Markets

The Tennessee Sports Wagering Council argues that prediction platforms are operating illegal sports betting operations without proper state licenses. Executive Director Mary Beth Thomas wrote in the letters that sports event contracts “are not compliant with these protections and are an immediate and significant threat to the public interest of Tennessee.”

Tennessee’s position centers on several key points. The state contends that allowing users to risk money on sporting event outcomes meets the legal definition of sports wagering, regardless of whether companies label their products as prediction markets or derivatives. According to state regulators, operating these products in Tennessee requires a state license and compliance with consumer protection and tax obligations that the platforms currently lack.

Source: @WALLACHLEGAL

The Tennessee Sports Wagering Council specifically criticized the platforms for failing to meet state standards including age verification requirements, anti-money laundering controls, and responsible gaming measures. Tennessee officials also warned that prediction markets threaten tax revenue generated by licensed sportsbooks, which helps fund education programs in the state.

Federal vs. State Authority

All three platforms targeted by Tennessee operate as designated contract markets registered with the Commodity Futures Trading Commission. This federal designation allows them to offer event-based derivatives contracts nationwide. The companies argue that CFTC oversight preempts state gambling regulations, creating a direct conflict between federal and state authority.

Kalshi spokesperson Jack Such defended the company’s position, stating their offerings are “very different from what state-regulated sportsbooks and casinos offer their customers.” The platforms maintain that they operate under the Commodity Exchange Act as federally regulated exchanges, not gambling sites.

This legal argument has produced mixed results in federal courts across the country. Some judges have sided with the platforms, while others have ruled in favor of state regulators. The Tennessee cease-and-desist letters were copied to Attorney General Jonathan Skrmetti, who has actively supported other states in legal challenges against Kalshi. Skrmetti joined 37 other attorneys general in an amicus brief supporting Maryland’s lawsuit against the prediction platform in December 2025.

Penalties and Consequences

Tennessee outlined escalating penalties for platforms that fail to comply with the January 31 deadline. Under the Tennessee Sports Gaming Act, the state can impose fines of $10,000 for a first offense, $15,000 for a second offense, and $25,000 for subsequent violations against anyone offering wagers without a state license.

More seriously, the letters warned that continued violations could trigger criminal referrals. Aggravated gambling promotion is classified as a Class E felony under Tennessee law. The regulator also indicated it would seek injunctive relief in state court if necessary.

Growing Multi-State Battle

Tennessee becomes at least the ninth state to take formal enforcement action against prediction market platforms over sports-related offerings. The action represents the first publicly known state-level cease-and-desist order specifically targeting Polymarket since the platform’s U.S. relaunch in late 2025.

Connecticut issued similar orders to the same three platforms in December 2025. However, a federal judge temporarily blocked Connecticut from enforcing its order against Kalshi while the court considers the company’s request for a preliminary injunction. Oral arguments in that case are scheduled for February 12, 2026, and could set important precedent for other states.

Nevada, Maryland, Massachusetts, New York, New Jersey, Arizona, Illinois, and Ohio have all pursued enforcement actions against prediction platforms. The cases have produced different outcomes depending on the jurisdiction and specific legal arguments presented.

Polymarket’s U.S. Return

The Tennessee action holds particular significance for Polymarket, which only recently returned to the U.S. market after being banned in 2022. The platform acquired exchange operator QCX for $112 million in July 2025 to obtain necessary regulatory licenses from the CFTC.

Polymarket received an Amended Order of Designation from the CFTC in November 2025, allowing it to operate as a fully regulated exchange. The platform began opening its U.S. app to waitlisted users in December 2025, though it has not yet launched publicly. Polymarket currently offers only sports-related contracts to U.S. users during this beta phase.

The timing of Tennessee’s enforcement action comes just weeks after Polymarket’s regulatory approval and soft relaunch, potentially complicating the company’s plans for full U.S. market entry.

Industry Growth and Investment

Despite mounting legal challenges, the prediction markets industry has experienced explosive growth over the past year. Kalshi reported $4.54 billion in trading volume in November 2025 alone. Polymarket received a $2 billion investment from Intercontinental Exchange, the parent company of the New York Stock Exchange, at an $8-9 billion valuation in October 2025.

The platforms have attracted billions in venture capital funding and partnerships with major sports leagues and financial institutions. However, the regulatory uncertainty creates significant questions about the industry’s long-term viability and geographic reach within the United States.

Tennessee’s sports betting market generated approximately $5.5 billion in annual wagering activity as of 2025, with tax revenue supporting state education funding. State officials view prediction markets as a threat to this established revenue stream.

The Road Ahead

The conflict between prediction market platforms and state regulators appears headed for extended legal battles that could ultimately reach the U.S. Supreme Court. With the Connecticut case scheduled for oral arguments in February and Tennessee’s January 31 deadline approaching, the coming months will likely bring clarity on whether federal commodities law truly preempts state gambling regulations.

Kalshi, Polymarket, and Crypto.com have not yet publicly responded to Tennessee’s cease-and-desist orders, but legal observers expect the platforms to challenge the state’s authority in federal court based on their responses in other jurisdictions.