Tennessee’s Shocking Crackdown: Regulators Target Kalshi, Polymarket, and Crypto.com Over Unlicensed Sports Wagering
In a significant regulatory escalation, Tennessee authorities have launched a direct confrontation with three prominent prediction market platforms, demanding immediate cessation of sports-related contracts and threatening substantial penalties for non-compliance. The Tennessee Sports Wagering Council (SWC) issued formal cease-and-desist letters to Kalshi, Polymarket, and Crypto.com’s North American Derivatives Exchange on Friday, December 12, 2025, accusing them of operating unlicensed sports wagering products within state borders. This enforcement action represents a critical test of jurisdictional boundaries between state gambling regulations and federally-regulated prediction markets, potentially setting precedents for digital finance platforms nationwide.
Tennessee’s Regulatory Offensive Against Prediction Markets
The Tennessee Sports Wagering Council has taken decisive action against what it perceives as illegal gambling operations disguised as financial products. According to documents published by sports betting attorney Daniel Wallach on social media platform X, the SWC asserts that all three platforms have been offering sports event contracts to Tennessee residents without holding the required license under the Tennessee Sports Gaming Act. Specifically, the regulator maintains that these contracts enable users to wager money on sporting event outcomes, a practice exclusively reserved for licensed sportsbooks under state law.
Furthermore, the SWC has rejected the platforms’ characterization of their offerings as mere “event contracts,” arguing this labeling provides no exemption from Tennessee’s comprehensive gambling statutes. The regulator emphasizes that licensed operators must adhere to stringent consumer protection requirements, including age verification systems, responsible gaming tools, and anti-money laundering controls. According to the cease-and-desist letters, these essential safeguards appear absent from the targeted platforms’ current operations.
Immediate Compliance Demands and Substantial Penalties
The Tennessee regulator has established clear deadlines and consequences for the affected companies. The SWC demands that Kalshi, Polymarket, and Crypto.com immediately halt all sports-related contract offerings to Tennessee residents. Additionally, they must void all existing contracts entered into by users within the state and refund all deposited funds by January 31, 2026. Failure to comply could trigger fines reaching $25,000 per offense, with continued non-compliance potentially leading to court injunctions and referrals to law enforcement for investigation into illegal gambling operations.
This enforcement action highlights the growing tension between state regulatory authority and federal oversight frameworks. While Kalshi and Polymarket maintain registration with the U.S. Commodity Futures Trading Commission (CFTC), the SWC asserts that federal registration does not supersede Tennessee’s authority to regulate sports wagering within its jurisdiction. This jurisdictional conflict mirrors similar disputes emerging across multiple states, creating a complex legal landscape for prediction market operators.
National Context of Prediction Market Regulation
Tennessee’s regulatory move occurs within a broader national pattern of increasing scrutiny toward prediction markets. Several states have questioned whether contracts tied to sports outcomes constitute illegal gambling rather than legitimate financial instruments. Notably, Kalshi has initiated lawsuits against regulators in New York, Massachusetts, New Jersey, Nevada, Maryland, and Ohio, indicating a widespread regulatory challenge across the United States.
In a related development last month, a U.S. federal judge temporarily blocked Connecticut regulators from enforcing a similar cease-and-desist order against Kalshi. Judge Vernon Oliver granted the company a temporary reprieve while the court considers Kalshi’s request for a preliminary injunction. This Connecticut case, which also involves Robinhood and Crypto.com, centers on Kalshi’s argument that its event contracts fall under federal commodities law and are regulated exclusively by the CFTC. The court has scheduled oral arguments for mid-February 2026, with filing deadlines set for January.
The legal landscape for prediction markets continues evolving rapidly. In December 2024, the CFTC issued a no-action letter to Bitnomial, clearing the way for event contracts on certain non-sports topics. However, sports-related contracts remain particularly contentious, with state regulators increasingly asserting their authority over what they perceive as gambling activities.
Consumer Protection and Regulatory Philosophy
Tennessee’s enforcement action emphasizes fundamental consumer protection concerns that distinguish regulated sportsbooks from prediction market platforms. Licensed Tennessee sportsbooks must implement comprehensive safeguards including:
- Age verification systems preventing underage gambling
- Responsible gaming tools allowing self-exclusion and deposit limits
- Anti-money laundering controls monitoring suspicious transactions
- Problem gambling resources providing support for at-risk users
- Transparent odds disclosure ensuring fair pricing information
The SWC maintains that prediction market platforms currently lack equivalent protections, potentially exposing Tennessee consumers to greater risks. This regulatory philosophy prioritizes consumer safety over innovation, creating tension with platforms that view their products as financial instruments rather than gambling vehicles.
Industry Response and Legal Precedents
Crypto News Insights reached out to Kalshi, Polymarket, and Crypto.com for comment regarding Tennessee’s cease-and-desist letters, but received no response by publication time. Historically, prediction market platforms have argued that their contracts represent financial instruments allowing users to hedge risks or express views on event outcomes, rather than traditional sports betting. They frequently cite CFTC oversight as providing sufficient regulatory framework for their operations.
The legal arguments in these cases often center on interpretation of the Commodity Exchange Act and state gambling statutes. Prediction markets typically contend that event contracts qualify as “excluded commodities” under CFTC jurisdiction, while state regulators argue that sports outcome contracts fall squarely within traditional gambling definitions. This fundamental disagreement creates uncertainty for both operators and users navigating the evolving regulatory landscape.
Recent regulatory developments suggest increasing state-level scrutiny of digital finance platforms offering gambling-adjacent services. The 2025 legislative session saw multiple states considering bills that would explicitly regulate or prohibit prediction markets tied to sports outcomes. These legislative efforts reflect growing concern about the blurring lines between financial innovation and gambling expansion.
Financial Implications and Market Impact
The Tennessee enforcement action carries significant financial implications for both the targeted platforms and the broader prediction market industry. Compliance with the SWC’s demands would require substantial operational changes, including geofencing technology to block Tennessee users, contract voiding procedures, and fund return mechanisms. For users, the January 2026 refund deadline creates uncertainty about existing positions and potential returns.
Industry analysts note that prediction markets have grown substantially since 2023, with total contract volume exceeding $500 million annually across major platforms. Sports-related contracts represent approximately 40% of this volume, making regulatory challenges particularly impactful. The Tennessee action may prompt similar enforcement in other states, potentially forcing platforms to reconsider their product offerings or pursue costly legal defenses.
| State | Platforms Targeted | Status | Key Issue |
|---|---|---|---|
| Connecticut | Kalshi, Robinhood, Crypto.com | Temporary injunction granted | Federal vs. state jurisdiction |
| New York | Kalshi | Lawsuit pending | Sports betting definition |
| Tennessee | Kalshi, Polymarket, Crypto.com | Cease-and-desist issued | Unlicensed operations |
| Ohio | Kalshi | Regulatory review | Consumer protection |
Conclusion
Tennessee’s cease-and-desist letters to Kalshi, Polymarket, and Crypto.com represent a significant escalation in state regulatory oversight of prediction markets. The Tennessee Sports Wagering Council has clearly articulated its position that sports event contracts constitute unlicensed gambling regardless of their packaging as financial instruments. This enforcement action highlights fundamental tensions between innovation and consumer protection, federal and state jurisdiction, and financial markets and gambling regulation. As the January 2026 compliance deadline approaches, the response from prediction market platforms will likely shape the future regulatory landscape for digital finance products nationwide. The outcome may establish important precedents for how states regulate emerging technologies that blur traditional categorical boundaries.
FAQs
Q1: What exactly are prediction markets being accused of in Tennessee?
Prediction market platforms face accusations of offering sports event contracts without a Tennessee sports wagering license, which the state regulator considers illegal gambling under local law.
Q2: How do prediction markets differ from traditional sports betting?
Prediction markets frame their offerings as financial contracts allowing users to trade on event outcomes, while traditional sportsbooks explicitly offer wagering services. However, regulators increasingly view both as functionally similar when involving sports results.
Q3: What happens if the platforms don’t comply with Tennessee’s demands?
Non-compliance could result in fines up to $25,000 per offense, court injunctions preventing operations in Tennessee, and potential law enforcement referrals for investigation into illegal gambling activities.
Q4: Why does federal CFTC registration not protect these platforms from state action?
States maintain authority to regulate gambling within their borders, and regulators argue that sports outcome contracts fall under gambling statutes regardless of federal commodities registration.
Q5: How might this affect users who have money on these platforms?
The Tennessee regulator has ordered platforms to refund all funds deposited by Tennessee users by January 31, 2026, and void existing contracts, though legal challenges may delay or modify these requirements.
Q6: Are other states taking similar action against prediction markets?
Yes, multiple states including Connecticut, New York, and Ohio are examining or challenging prediction market operations, creating a patchwork of regulatory approaches across the United States.
