A quiet regulatory office in Nashville just fired what could become the opening in a legal war that threatens to redraw the boundaries of American gambling. Three major prediction market platforms now have less than three weeks to pull out of Tennessee or face criminal charges.
Tennessee’s Sports Wagering Council sent cease-and-desist letters to Kalshi, Polymarket, and Crypto.com on January 9, ordering them to stop offering sports-related contracts to anyone in the state. Mary Beth Thomas, executive director of the council, didn’t hold back, writing that the platforms pose “an immediate and significant threat to the public interest of Tennessee.”
The companies have to shut down their Tennessee operations, close existing contracts, and refund customers’ deposits by January 31, 2026. Daniel Wallach, America’s leading expert in sports betting and gaming law, disclosed the news on social media after getting copies of the letters, which quickly got circulated among the industry insiders.
Federal License Meets State Resistance
The dispute highlights a question: when federal and state regulators disagree, who wins? Kalshi, Polymarket, and Crypto.com all have federal registration as designated contract markets via the Commodity Futures Trading Commission. This status allows them to offer event-based derivatives contracts nationwide, and company lawyers say it protects them from state gambling regulations.
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Tennessee sees things differently. State officials argue that letting people wager money on sports outcomes is sports betting. What companies choose to call their products does not change that basic fact. Thomas pointed out that these platforms do not follow Tennessee’s consumer safeguards—no age checks, no responsible gaming tools, and no anti-money laundering systems.
Ignoring the order carries serious consequences. Tennessee will impose fines of $10,000 for a first violation, $15,000 for a second, and $25,000 for each additional offense. Beyond financial penalties, the state pointed to criminal statutes that classify gambling promotion as a Class B misdemeanor and “aggravated gambling promotion” as a Class E felony. Thomas also stressed that companies that fail to comply could be referred to law enforcement.
Court Fight Coming
Kalshi didn’t wait long to respond, filing a federal lawsuit to stop Tennessee’s enforcement action. Company representatives called it an “unlawful attempt” to shut down prediction markets and stressed that courts have already recognized Kalshi operates differently than traditional sportsbooks.
For Polymarket, the timing stings. The company just bought derivatives exchange QCX for $112 million last summer and started letting waitlisted users onto its U.S. platform in December. This is the first state cease-and-desist Polymarket has received since coming back to America.
