Tennessee has demanded that Kalshi, Polymarket, and Crypto.com immediately halt their sports betting-style operations in the state, claiming the companies violated local gambling laws.
Key Takeaways
- Tennessee’s Sports Wagering Council (SWC) sent cease-and-desist letters to Kalshi, Polymarket, and Crypto.com, alleging illegal sports betting.
- The platforms, regulated by the federal Commodity Futures Trading Commission (CFTC), were accused of operating without required state licenses.
- The firms must refund deposits, void open contracts, and cease activity in Tennessee by Jan. 31, 2026, or face stiff penalties and possible criminal charges.
- The move highlights a growing legal battle between prediction market operators and state regulators across the U.S.
What Happened?
Tennessee’s gambling regulator accused the three companies of illegally offering sports wagering products by disguising them as “event contracts” without holding a valid state license. Though the firms are federally registered with the CFTC, the state insists that such contracts qualify as wagers under Tennessee law.
BREAKING: Tennessee Sports Wagering Council sends cease-and-desist letters to Kalshi (📸), Polymarket and Crypto, demanding that they cease offering sports event contracts to TN customers immediately, void all pending contracts and issue refunds by Jan. 31. Lawsuits are imminent. pic.twitter.com/jDIPIwsrCn
— Daniel Wallach (@WALLACHLEGAL) January 9, 2026
Tennessee Moves to Rein in Prediction Markets
On January 9, the Tennessee Sports Wagering Council (SWC) issued formal cease-and-desist orders to Kalshi, Polymarket, and Crypto.com, warning them to shut down their sports betting-style operations for residents of the state. The SWC argues that their offerings, although styled as event contracts, are essentially unlicensed sports wagers that violate Tennessee’s Sports Gaming Act.
According to the letters, the companies have until January 31, 2026, to:
- Cease all sports-related contract offerings in Tennessee.
- Void any open contracts involving Tennessee residents.
- Refund all customer deposits.
Failure to comply could lead to civil fines of up to $25,000 per violation and potentially even criminal referrals for aggravated gambling promotion.
The SWC cited consumer protection concerns, noting that licensed operators in Tennessee must comply with strict safeguards, including age restrictions, responsible gaming tools, and anti-money laundering measures, which they say these platforms lack.
State vs. Federal Oversight
All three platforms are registered with the Commodity Futures Trading Commission (CFTC), allowing them to legally offer derivatives contracts at the federal level. Kalshi and Polymarket, for example, operate as designated contract markets and offer contracts tied to the outcomes of real-world events, including sports.
However, Tennessee insists that federal approval does not preempt state gambling laws, especially when the contracts in question allow users to stake money on sports results. In its letter to Kalshi, the SWC said plainly: “The sports events contracts offered on Kalshi’s exchange are Wagers under the Act and are being offered illegally in violation of Tennessee law and regulations.”
This position mirrors actions by other states. In December, Connecticut regulators also issued cease-and-desist letters to Kalshi, Robinhood, and Crypto.com, citing similar concerns. While a federal judge temporarily blocked Connecticut from enforcing its order against Kalshi, the broader legal battle continues.
Broader Scrutiny After Venezuela Betting Incident
The Tennessee crackdown comes in the wake of increased scrutiny of prediction markets. Regulators have raised alarms over potential manipulation or insider use of event-based contracts. A notable case involved highly suspicious trades on Polymarket, where an unidentified entity allegedly turned $30,000 into $400,000 by betting on the removal of Venezuelan President Nicolás Maduro just before it happened.
That episode prompted U.S. Representative Ritchie Torres and 30 other lawmakers to introduce the Public Integrity in Financial Prediction Markets Act of 2026, a bill aiming to restrict federal officials and government employees from trading on prediction markets tied to political or policy outcomes.
CoinLaw’s Takeaway
In my experience covering crypto and regulatory turf wars, this one’s heating up fast. The clash between federal and state oversight is only getting messier. On one side, you have platforms like Kalshi and Polymarket that want to innovate and operate under federal rules. On the other, you have state regulators insisting their authority can’t be bypassed. I found the response from Tennessee to be particularly forceful, and it could influence how other states respond. This legal tug-of-war will shape how prediction markets grow in the U.S., and whether they can ever safely offer sports-related contracts without triggering state-level crackdowns.
