Tennessee’s Crackdown on Prediction Markets Rattles Crypto and Betting Industries
Tennessee has made it clear that prediction markets which feature sports-related contracts are not welcome in the state. In this regard, the Tennessee General Assembly has ordered Kalshi, Polymarket and Crypto.com to immediately discontinue services for residents of the state.
Federal sports betting watchdog, the Tennessee Sports Wagering Council (SWC), issued cease-and-desist notices on Friday accusing the platforms of running illegal sports betting without a state license. According to Wallach, the letters are a signal of heightened enforcement efforts now that legal sports betting is up and running across the U.S.
Tennessee authorities say labeling bets on sports as “event contracts” won’t make them legal under state law.
Tennessee’s Stance on Prediction Markets and Legality
The SWC claims contracts for sporting events provided by the platforms allow users to bet money on the result of sporting events—an activity authorized only to licensed sportsbooks under the Tennessee Sports Gaming Act.
According to the regulator, federal oversight does not give these platforms a free pass at the state level. Tennessee can regulate sports wagering even if contracts are structured under commodities law.
At the center of the disagreement is consumer protection.
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Consumer Protection at the Heart of Tennessee’s Argument
Consumer protections are a chief pillar of Tennessee’s argument. Sportsbooks licensed in the state must follow strict rules, including:
- Proof of age
- Tools for responsible gambling
- Anti-money laundering controls
The SWC states that either these protections do not exist on prediction market platforms or do not sufficiently exist.
Refunds Requested as Tennessee Prediction Market Ban Takes Effect
Kalshi, Polymarket and Crypto.com must, under order:
- Cease providing sports contracts to residents of Tennessee immediately
- Disregard any existing sports contracts held by users in the state
- Repay all customers $2.75 million in funds by Jan. 31, 2026
Failure to comply may result in fines of $25,000 per violation, court injunctions, and referrals to law enforcement for illegal gambling.
A Legal Fight Over Federal and State Power
For years, Kalshi and Polymarket have contended that their contracts qualify as federal commodities governed by the U.S. Commodity Futures Trading Commission (CFTC). Tennessee regulators explicitly countered that argument, asserting that federal regulation does not supersede state gambling prohibitions.
At the time of publication, requests for comment were not answered by any of the three platforms.
Connecticut Case Highlights Nationwide Regulatory Tensions
Tennessee’s actions follow a similar move in Connecticut, where regulators accused Kalshi, Robinhood and Crypto.com of running unlicensed sports betting through event contracts.
In that case, a federal judge halted Connecticut’s enforcement action against Kalshi, allowing the company temporary relief as courts evaluate whether prediction markets fall exclusively under federal jurisdiction.
Kalshi has since filed lawsuits against regulators in New York, Massachusetts, New Jersey, Nevada, Maryland and Ohio, underscoring the fragmented and controversial regulatory landscape.
What the Tennessee Prediction Market Ban Means Going Forward
Tennessee’s move signals that states are no longer waiting for federal clarification. As prediction markets blend finance, gaming and crypto, regulators are stepping in to defend the traditional sports betting model.
Whether prediction markets ultimately gain protection under federal commodities law or must comply with restrictive state gambling rules will significantly shape the future of sports betting and onchain prediction markets across the United States.
