Federal judge temporarily halts Tennessee's bid to shut down Kalshi sports contracts

A federal judge has temporarily blocked Tennessee state regulators from enforcing a cease-and-desist order against prediction market operator Kalshi, dealing an early setback to one of the most aggressive state crackdowns yet on sports-based event contracts.

On Monday, U.S. District Judge Aleta Trauger granted Kalshi a temporary restraining order preventing the Tennessee Sports Wagering Council and the state attorney general from enforcing state sports betting and gambling statutes against the company while the case proceeds.

Kalshi is likely to succeed on the merits of its claims and would suffer irreparable harm if the state were allowed to move forward with enforcement, the ruling stated.

This order comes just days after Tennessee regulators ordered Kalshi, Polymarket, and Crypto.com to stop offering sports event contracts to state residents, void open contracts, refund customer deposits, and shut down in state activity by Jan. 31. The regulator warned that failure to comply could result in civil penalties of up to $25,000 per violation and potential criminal referrals for aggravated gambling promotion.

Kalshi moved quickly to challenge the order in federal court, arguing that as a U.S. Commodity Futures Trading Commission (CFTC)-regulated designated contract market, it falls under the CFTC’s exclusive jurisdiction and is shielded from state gambling laws by federal preemption.

Trauger’s order does not resolve that question, but it freezes Tennessee’s enforcement effort ahead of a preliminary injunction hearing scheduled for Jan. 26.

The decision lands amid a rapidly expanding legal battle between prediction markets and state gaming regulators. Federal courts in New Jersey and Nevada have previously granted Kalshi preliminary injunctions blocking state enforcement, while, last year, a Maryland court denied similar relief and allowed regulators there to proceed.

This recent temporary restraining order suggests that at least some federal judges remain receptive to Kalshi’s preemption arguments, even as other courts express growing skepticism.

For now, the ruling preserves Kalshi’s ability to operate in Tennessee while the court weighs whether sports-based event contracts are federally protected derivatives or unlicensed gambling subject to state control.