While regulators in many states have begun recognizing and regulating the rapidly growing industry of prediction markets (e.g., bet, wager on an event) as a viable form of business, in the South, however, this battle is still being fought. On Friday, the Tennessee Sports Wagering Council (SWC) issued aggressive cease-and-desist orders to three of the largest players in the space—Kalshi, Polymarket, and Crypto.com—demanding they immediately stop offering sports-related contracts to Tennessee residents.
The letters, which accuse the platforms of operating unlicensed sportsbooks under the guise of financial exchanges, set a hard deadline of January 31, 2026, for the companies to completely wind down their local operations. Although the betting industry has recently had successes at the national level, the continued opposition at the state level remains a significant risk to the development of decentralized wagering.
The Regulator’s Ultimatum
In the correspondence, which was shared publicly by sports betting attorney Daniel Wallach, the SWC did not mince words. The regulator explicitly categorized the “event contracts” offered by these platforms—which allow users to trade on outcomes like the Super Bowl winner or athlete performance metrics—as “wagers” under the Tennessee Sports Gaming Act.
Because none of the three companies hold a sports wagering license in the state, the SWC argues their operations are illegal. The consequences for non-compliance are severe: the regulator threatened civil penalties of up to $25,000 per offense, along with potential court injunctions. Perhaps most alarming for the companies’ executives, the letters warned of referrals to law enforcement, citing that “aggravated gambling promotion” is a felony under Tennessee law.
Refunds Ordered by Jan. 31
The SWC has established a very specific timetable for when the platforms must leave the market. As of January 31, Kalshi, Polymarket and Crypto.com must stop accepting new contracts and must void all current contracts held by Tennessee residents.
Most importantly, all money in Tennessee users’ accounts must be returned by this date, which may pose challenges for some companies such as Polymarket, which use blockchain networks to maintain users’ accounts and will technically find sending back any money difficult (if their smart contracts have already been locked).
A Clash of Definitions: Gambling or Investing?
At the heart of the dispute is a fundamental disagreement over what these products actually are. Kalshi and Polymarket (which recently re-entered the U.S. market) operate as Designated Contract Markets (DCMs) registered with the federal Commodity Futures Trading Commission (CFTC). They argue that their “event contracts” are financial derivatives, akin to futures or options, and therefore fall under exclusive federal jurisdiction.
Tennessee regulators rejected this defense outright. “Packaging a sports wager as an ‘event contract’ does not exempt it from Tennessee’s gambling statutes,” the SWC wrote. The state contends that if it looks like a bet and pays out like a bet, it is a bet—regardless of whether it is traded on an exchange.
Consumer Protection Concerns
The SWC not only discussed the licensing dispute but also described the absence of strong consumer protections between the licensed sportsbooks and prediction markets. In Tennessee, all licensed sportsbooks must have strict age verification (21+), provide responsible gaming tools and comply with anti-money laundering requirements, but the SWC stated that there were none of these protections for consumers on the prediction markets. By allowing users—potentially including minors—to wager on sporting outcomes without the safety nets required of traditional sportsbooks like DraftKings or FanDuel, the SWC argued the platforms pose a direct risk to public welfare.
The Connecticut Precedent
Tennessee’s aggressive stance comes amidst a chaotic legal landscape. Just last month, the industry scored a temporary win in New England when a federal judge blocked Connecticut from enforcing a similar cease-and-desist order against Kalshi.
In that case, Judge Vernon Oliver granted a preliminary injunction, pausing the state’s crackdown while the courts determine whether federal commodities law truly preempts state gambling regulations. That legal battle is set to heat up with oral arguments scheduled for mid-February. However, the ruling in Connecticut is not binding on Tennessee, leaving the Volunteer State free to pursue its own enforcement actions until a higher court intervenes.
A Widening Dragnet
Tennessee is far from an outlier. The SWC’s action adds to a growing list of states—including New York, Massachusetts, New Jersey, and Ohio—that have moved to curb the rise of prediction markets.
As the January 31 deadline approaches, all eyes will be on whether Kalshi, Polymarket, and Crypto.com choose to comply and exit the state, or if they will file for an emergency injunction to keep their Tennessee markets open.
