- Kalshi secures legal win in federal court against Tennessee regulators.
- The court grants a preliminary injunction, blocking regulators from taking action against the platform.
- The Tennessee regulators sued the firm, arguing that it’s not registered under the state.
Kalshi, a prominent prediction markets platform, has scored a major legal win in Tennessee. A federal court has granted the company a preliminary injunction, stopping state officials from enforcing local sports betting laws against its event contracts while the case moves through the courts.
US District Judge Aleta A. Trauger ruled that Kalshi is likely to succeed in arguing that its sports-event contracts qualify as swaps under federal law. The decision shields the platform from state enforcement actions and highlights the ongoing tensions between federal oversight and state gambling regulations.
Judge Rules in Favor of Kalshi
According to the latest reports, the prediction market giant, Kalshi, has won a temporary court order in Tennessee. This order, released on Thursday, stops state officials from enforcing local betting laws against its sports-related event contracts. The court statement read,
“This case concerns whether state or federal law governs a novel form of sports betting. Plaintiff KalshiEX LLC (“Kalshi”) is a federally designated derivatives exchange on which people bet on sports, among other things. Tennessee permits online sports betting, but operators must be licensed, pay taxes and fees, and abide by various restrictions — requirements with which Kalshi does not comply.”
It is worth noting that the development follows the Tennessee regulators’ cease-and-desist order against the prediction market platform. The state regulators alleged that Kalshi is operating without a state license under the Tennessee Sports Gaming Act.
While the regulators threatened enforcement, the firm filed a lawsuit against them, seeking declaratory and injunctive relief. The platform questions the regulators’ authority to regulate prediction markets, arguing that they fall under the CFTC’s jurisdiction.
With the latest injunctive order, Tennessee officials are blocked from taking action against the prediction markets platform. However, the state argues that the platform’s contracts are based on the result of a sports game, not the occurrence of an event as required by the law. In contrast, the judge claims that the outcome of a game can also count as an occurrence under the law. The court added,
“Now before the court is Kalshi’s Motion for Preliminary Injunction (Doc. No. 6), which, for the reasons set forth herein, the court will grant as to the individual defendants and deny as to the state agency defendant.”
The judge also addressed another legal requirement. Swaps must be linked to possible financial or economic effects. She accepted firm’s argument that sports results can have downstream economic impacts.
What Is the Legal Fight About?
The main issue centred around the Kalshi lawsuit is how the platform’s sports event contracts should be classified. Not only Kalshi, but many other prediction market platforms are facing a similar situation. The court is deciding whether these contracts are financial products regulated under federal commodities law or simply sports bets that fall under state gambling rules.
Kalshi is registered with the US Commodities Futures Trading Commission as an official trading platform. Thus, it argues that its contracts are legal financial derivatives overseen by federal law. However, the state claims that the company is effectively offering sports betting without a state license and without following the tax and regulatory requirements.