A recent decision from the U.S. District Court for the Middle District of Tennessee marks a significant development in the ongoing dispute over whether sports event contracts offered on prediction market platforms are properly regulated by the Commodity Futures Trading Commission (CFTC) or whether such contracts should be regulated by the states as sports betting. Tennessee officials had issued a cease‑and‑desist order contending that certain sports‑linked event contracts were akin to unlicensed sports wagering under state law. Prediction contract platform provider, Kalshi, responded by filing suit in federal court, arguing that these contracts were “swaps” governed exclusively by the Commodity Exchange Act and subject to the CFTC’s jurisdiction, not Tennessee’s sports‑betting framework.

On February 19, the Tennessee court granted a preliminary injunction barring the attorney general and the Tennessee Sports Wagering Council from enforcing state gambling and sports‑wagering laws against the challenged contracts while the case proceeds. In doing so, the court found that the plaintiff was likely to succeed in its claim that the contracts qualify as swaps under the federal regulatory regime. The court further concluded that forcing compliance with Tennessee’s sports‑wagering rules risked conflict with the Commodity Exchange Act and thus could be preempted. The injunction order also acknowledged evidence of irreparable harm, including disruption of existing markets and the operational consequences of rapidly exiting Tennessee.

Implications for State Enforcement Efforts

This ruling marks yet another example of courts diverging in their views on how prediction market platforms should be regulated.

In Massachusetts, a Superior Court judge signaled agreement with the state’s argument that Kalshi is effectively offering sports wagering under the guise of “event contracts” and granted a preliminary injunction against the platform. By contrast, in April 2025, the U.S. District Court for the District of New Jersey granted a preliminary injunction in favor of Kalshi, blocking the New Jersey Division of Gaming Enforcement from enforcing its cease‑and‑desist order. But preliminary injunctions are temporary and can be modified or reversed as litigation continues. For example, Kalshi initially obtained a preliminary injunction in federal court preventing Nevada gaming regulators from enforcing state law against its sports and event contracts. However, in November 2025, the federal court dissolved that injunction, allowing Nevada to resume enforcement.

For now, the Tennessee decision endorses — at least at the preliminary‑injunction stage — a federal preemption theory that limits state enforcement where products are structured and regulated as swaps. Though the order is interlocutory and focused on the narrow facts presented, it underscores the split in how federal and state authorities view sports‑event contracts and highlights the continuing uncertainty over the boundary between federal derivatives regulation and state gambling regimes. The Tennessee decision also is important, as it is one of the first issued by a court since the CFTC announced in February 2026 that it intended to defend prediction market platforms from states seeking to regulate them as a form of gambling.