TLDR
- A federal judge in Tennessee granted Kalshi a preliminary injunction, blocking state officials from enforcing local sports betting laws against it.
- Judge Trauger ruled Kalshi’s sports event contracts qualify as swaps under the Commodity Exchange Act (CEA), giving them federal protection.
- The court found Kalshi cannot comply with both state licensing rules and CFTC regulations at the same time.
- Courts in Maryland and Nevada have denied Kalshi similar injunctions, while New Jersey and now Tennessee have granted them.
- The CFTC has also filed a brief asserting exclusive federal jurisdiction over prediction markets in a related case.
Prediction market platform Kalshi won a key legal battle in Tennessee on February 19, 2026. A federal judge blocked state officials from enforcing local sports gaming laws against the company.
U.S. District Judge Aleta Trauger granted Kalshi a preliminary injunction. This came five weeks after she issued a temporary restraining order against Tennessee gaming regulators.
The core question was whether Kalshi’s sports event contracts count as regulated swaps under federal law. Judge Trauger ruled they do, placing them under the Commodity Exchange Act (CEA).
Kalshi is regulated by the Commodity Futures Trading Commission (CFTC). It argues its contracts are federally governed and not subject to state sports betting laws.
Tennessee regulators disagreed. They had sent Kalshi a cease-and-desist letter, saying the platform was operating without a state license under the Tennessee Sports Gaming Act.
Kalshi filed suit last month in response. It asked the court for declaratory and injunctive relief to continue operating in the state.
Judge Trauger drew a clear line between Kalshi and traditional sportsbooks. She noted Kalshi runs an exchange where users bet against each other, not against the house.
“Kalshi does not set the odds, is not a party to the bets, and has no interest in who wins,” she wrote. The company earns money through trading fees.
How the Court Defined the Contracts
State officials argued Kalshi’s contracts depend on the “outcome” of a game, not an “occurrence” as required by federal swap definitions. The judge rejected that reasoning.
“The outcome of an event can be an occurrence, too,” Trauger wrote. She also accepted Kalshi’s argument that downstream effects — like merchandise sales after a team wins — count as economic consequences.
The judge noted Congress used the word “potential” when describing required financial impact. She said this was intentionally broad language.
The court also found that complying with both state and federal rules at the same time would be impossible. That conflict tips the scales toward federal preemption.
A Split Picture Across the Country
This ruling does not settle the debate nationally. Courts in Maryland and Nevada have denied Kalshi similar injunctions. New Jersey granted one, and now Tennessee has too.
Cases are still pending in Ohio, New York, and Connecticut. Appellate litigator Andrew Kim noted on X that the Supreme Court may ultimately decide the issue.
The CFTC also filed an amicus brief this week in the Ninth Circuit, asserting it has exclusive jurisdiction over prediction markets in a case involving Crypto.com and Nevada.
Kalshi processed over $9.5 billion in trading volume in January 2026, making it the largest prediction market exchange by volume. Nevada’s Gaming Control Board has separately filed suit to stop Kalshi from offering sports-related contracts in that state.
