Tennessee orders Kalshi, Polymarket and Crypto.com to cease sports betting operations

• Tennessee Sports Wagering Council issued cease-and-desist letters to Kalshi, Polymarket and Crypto.com, demanding platforms immediately halt sports event contracts offered to state residents.
• Regulator requires platforms to void all existing contracts and refund customer deposits by 31 January 2026, with escalating fines for non-compliance.
• Kalshi filed a federal lawsuit the same day and secured a temporary restraining order from the US District Court, blocking Tennessee from enforcement action pending a preliminary injunction hearing on 26 January.

Tennessee has become the latest US state to challenge prediction market platforms, with its sports betting regulator issuing cease-and-desist orders to three major operators over sports-related contracts that state officials claim violate gambling laws.

The Tennessee Sports Wagering Council (SWC) sent formal letters dated 9 January 2026 to Kalshi, Polymarket and Crypto.com’s North American Derivatives Exchange, demanding all three platforms immediately halt sports event contracts offered to Tennessee customers, void all existing contracts and refund customer deposits by 31 January 2026.

Platforms accused of unlicensed gambling operations

SWC Executive Director Mary Beth Thomas stated the companies’ sports event contracts fail to meet state consumer protection standards and pose “an immediate and significant threat to the public interest of Tennessee.” Nearly identical language appeared in all three letters.

The regulator accused the platforms of operating unlicensed sports wagering products in violation of the Tennessee Sports Gaming Act. According to the letters, allowing users to risk money on sporting event outcomes meets the statutory definition of sports wagering, regardless of whether products are described as prediction markets or derivatives.

Thomas noted Tennessee requires safeguards for licensed entities, including a minimum age of 21, specific anti-money laundering controls and responsible gaming tools. She stated none of the three companies offer these requirements to customers and none pay the sports betting tax to the state.

Federal versus state jurisdiction clash intensifies

All three platforms are registered with the Commodity Futures Trading Commission (CFTC) as designated contract markets, a federal designation allowing them to offer event-based derivatives contracts nationwide. The companies argue federal oversight preempts state gambling laws, though courts have issued mixed rulings.

Sports betting attorney Daniel Wallach first reported the enforcement action on social media, stating “lawsuits are imminent.” Hours after receiving the cease-and-desist letter, Kalshi filed a lawsuit in US District Court for the Middle District of Tennessee.

Kalshi stated:

“Tennessee has nevertheless sought to regulate Kalshi under state law. It sent us a cease-and-desist letter earlier today, and we have now brought suit in federal court to stop this unlawful attempt.”

On 12 January 2026, US District Judge Aleta Trauger granted Kalshi’s request for a temporary restraining order, blocking the SWC from enforcement action pending a preliminary injunction hearing on 26 January 2026.

Judge Trauger determined Kalshi “is likely to succeed on the merits of its claims” and would “suffer irreparable injury and loss” without judicial intervention.

Polymarket and Crypto.com did not immediately respond to requests for comment.

Under the Tennessee Sports Gaming Act, the SWC can impose fines of $10,000 for a first offence, $15,000 for a second offence and $25,000 for subsequent violations. More seriously, continued violations could trigger criminal referrals, as aggravated gambling promotion is classified as a Class E felony under Tennessee law.

Tenth state to take enforcement action

Tennessee becomes at least the tenth state to take formal enforcement action against prediction market platforms. To date, regulators in Arizona, Connecticut, Illinois, Maryland, Montana, Nevada, New Jersey, New York, Ohio and now Tennessee have issued cease-and-desist orders against Kalshi.

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. Oral arguments are scheduled for 12 February 2026 and could set precedent for other states.

The Tennessee action appears to be the first publicly disclosed state-level cease-and-desist order specifically targeting Polymarket since the platform’s US relaunch.

Arizona moves to revoke operator licences

In December 2025, Arizona became the first state to move towards revoking an operator’s licence over prediction market involvement. The Arizona Department of Gaming issued a notice of intent to revoke to Underdog Fantasy, citing the company’s partnership with Crypto.com.

Arizona regulators determined Underdog was “aiding and abetting Crypto’s illegal conduct in Arizona and providing it with a façade of legitimacy.”

The action marked the first time a state regulator moved to pull a daily fantasy sports licence due specifically to prediction market activities.

Underdog responded by announcing it would vigorously defend against the action and has since exited the North Carolina sports betting market to focus exclusively on prediction markets. The company ceased sports betting operations in North Carolina on 16 December 2025.

Analysts suggest Fanatics and PrizePicks could face similar enforcement actions in Arizona. Fanatics recently launched Fanatics Markets in partnership with Crypto.com, whilst PrizePicks has relationships with Kalshi and Polymarket.

Louisiana issues stern warning

Louisiana joined the growing bloc of states opposing prediction markets in December 2025. Louisiana Gaming Control Board Chair Christopher Hebert sent a letter to licensed sports betting operators warning that sports event contracts constitute illegal sports wagering under state law.

Hebert stated:

“Any direct or indirect involvement in the operation, offering, or facilitation of sporting event contracts may affect a regulated party’s suitability for licensure or permitting in Louisiana.”

The Louisiana regulator rejected arguments that CFTC oversight provides a legal defence, stating:

“Not only is such activity illegal under Louisiana law, but the Commodities Exchange Act and the CFTC’s regulations prohibit event contracts related to gaming and activities which are illegal under state law.”

Three Louisiana-licensed operators—DraftKings, FanDuel and Fanatics—have either begun offering sports event contracts in other states or announced plans to do so.

Industry forms coalition to defend federal oversight

In response to mounting state pressure, prediction market operators formed the Coalition for Prediction Markets (CPM) in December 2025. Founding members include Kalshi, Crypto.com, Coinbase, Robinhood and Underdog.

Sara Slane, executive board member and head of corporate development at Kalshi, stated:

We spent years working with the CFTC because prediction markets must operate with strong federal safeguards that prevent insider trading, protect consumers, and ensure these markets remain transparent and corruption-free.”

The coalition contends state gaming regulators’ attempts to impose gambling-style oversight threatens to cause confusion and undermine the existing federal framework. A coalition-backed poll indicates nearly 90% of respondents support prediction markets in their current form, and 79% favour federal regulation over state oversight.

Market growth continues despite legal challenges

Despite regulatory pressure, activity on prediction markets continues expanding.

Polymarket re-entered the US market following its $112 million acquisition of derivatives exchange QCX. Kalshi announced a $1 billion funding round in December 2025, bringing its valuation to $11 billion.

Representative Ritchie Torres proposed the Public Integrity in Financial Prediction Markets Act of 2026, which has received support from more than 30 House Democrats, including former Speaker Nancy Pelosi.

The letters were copied to Tennessee Attorney General Jonathan Skrmetti, who joined 37 other attorneys general in an amicus brief supporting Maryland’s lawsuit against Kalshi in December 2025.

Tennessee’s sports betting market generated approximately $5.5 billion in annual wagering activity as of 2025. State officials view prediction markets as a threat to this established revenue stream. Tennessee currently licences 12 sports betting operators and collected taxes on over $305 million in July 2025 wagers alone.

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