Judge temporarily halts Tennessee ban, Kalshi sports betting contract granted temporary protection

A federal judge temporarily blocked Tennessee regulators from enforcing an injunction against the prediction market operator Kalshi, marking a preliminary setback in the state’s most aggressive sports betting contract crackdown to date. U.S. District Judge Aleta Trauger approved Kalshi’s temporary restraining order, prohibiting the Tennessee Sports Wagering Committee and the state attorney general from taking enforcement actions during the case proceedings. The ruling noted that if state regulation continued, Kalshi could suffer irreparable harm, and its legal claims are likely to succeed.

Previously, Tennessee ordered Kalshi, Polymarket, and Crypto .com to cease offering sports contracts to residents within the state, void open contracts, and refund customer funds, while also requiring them to stop operating in the state by January 31. Regulators warned that violations could result in civil fines of up to $25,000 per incident and potential criminal penalties. Kalshi promptly filed a federal lawsuit asserting that as a designated contract market under the U.S. Commodity Futures Trading Commission (CFTC), it is protected by federal law and not subject to state gambling laws.

Trauger’s temporary restraining order does not resolve the dispute over state versus federal authority but, ahead of the preliminary injunction hearing on January 26, froze state enforcement actions, buying time for Kalshi’s operations in Tennessee. Legal experts noted that this indicates some federal judges recognize Kalshi’s priority argument, especially amid escalating conflicts between prediction markets and state gambling regulation.

Earlier, federal courts in New Jersey and Nevada issued similar preliminary injunctions against Kalshi, while a Maryland court last year allowed state regulators to continue enforcement measures. This ruling means Kalshi’s sports contract operations in Tennessee are temporarily protected by law, while the court continues to evaluate whether these contracts are protected under federal derivatives regulations or should be subject to state gambling laws.

This development is expected to become a landmark case in the ongoing battle between prediction markets and state gambling regulation. Market observers believe that the legal contest between Kalshi and state authorities could influence future regulation of nationwide sports betting contracts and crypto derivatives.