A US federal judge in Tennessee has issued a preliminary order preventing the state from enforcing its gambling regulations against Kalshi, the operator of prediction markets for sports events.

The decision, made by Judge Aleta Trauger from the Middle District of Tennessee, permits Kalshi to continue offering sports event contracts while a lawsuit against state regulators is active. The ruling suggests that Kalshi may convincingly argue that federal commodities law supersedes Tennessee’s efforts to regulate its sports markets as unlawful gambling.

According to the court’s findings, Kalshi’s sports contracts qualify as “swaps” under the Commodity Exchange Act, a designation that grants the US Commodity Futures Trading Commission (CFTC) exclusive monitoring authority over them. This ruling implies that Tennessee’s actions may be preempted by federal law.

Preliminary injunction, Kalshi. Source: CourtListener

The injunction impacts the identified state officials, with the Tennessee Sports Wagering Council itself dismissed due to claims of sovereign immunity. Additionally, Kalshi has been required to secure a $500,000 bond.

Ongoing Dispute with States

This case further exemplifies the ongoing national debate surrounding the treatment of event contracts within the United States. Previous actions taken by Trauger had already halted the enforcement of Tennessee’s cease-and-desist order, which accused Kalshi of operating unlicensed sports wagering, mandating it to cease operations, void existing contracts, and refund customer deposits, alongside threats of fines and further legal repercussions.

CFTC Involvement

This injunction arrives at a critical juncture as the CFTC steps in to solidify its control over prediction markets. CFTC Chair Michael Selig stated that the agency has submitted a brief to defend its “exclusive jurisdiction” and warned state authorities it would take them to court should they attempt to lessen federal oversight.

For further details, refer to the full court ruling.