Tennessee Joins Growing List of States Targeting Prediction Market Operators

Tennessee has become the latest state to push back against prediction markets, issuing cease-and-desist orders that underscore the widening regulatory challenges facing the fast-growing sector. The Tennessee Sports Wagering Council (SWC) confirmed it has instructed Crypto.com, Polymarket, and Kalshi to immediately halt operations involving Tennessee customers. The regulator has ordered the platforms to void any outstanding contracts, stop accepting new users from the state, and issue full refunds by the end of January.

The move represents Polymarket’s first major state enforcement action since the crypto-based platform resumed US-facing operations earlier this year. It also adds to a growing list of challenges confronting prediction market operators as they expand.

State Alleges Violations of Sports Betting Law

In letters dated January 9, the SWC argues that prediction market platforms are operating in breach of the Tennessee Sports Gaming Act, which has governed regulated sports betting in the state since 2019. According to the regulator, the platforms are offering sports-related contracts without the required licenses and without paying state-mandated taxes.

The council also raised concerns over consumer protections, pointing to age verification standards that allow participation from users as young as 18, below Tennessee’s minimum age of 21 for sports wagering. Additional allegations include insufficient anti-money laundering controls, weak responsible gambling safeguards, and failures to meet bettor eligibility requirements.

The SWC described the platforms as posing an “immediate and significant threat” to consumers and warned that non-compliance could result in escalating penalties. Fines would begin at $10,000 for a first offence, rising to $15,000 and $25,000 for subsequent violations. The regulator also indicated it would seek injunctive relief and refer potential criminal violations to law enforcement if the companies continue operating in the state.

Kalshi Challenges State Authority

Kalshi has emerged as the only operator to publicly respond. The company maintains that it operates under exclusive federal jurisdiction and that its event-based contracts differ fundamentally from state-regulated sports betting products. Kalshi has filed suit in federal court seeking to block Tennessee’s enforcement action, arguing that the state lacks authority over its platform.

The dispute in Tennessee adds to a growing patchwork of legal challenges for Kalshi across the country. Recent months have delivered mixed results in federal courts, with judges in Maryland and Nevada siding with state regulators and rejecting claims that federal law fully preempts state gambling statutes.

Those rulings contrast with an earlier decision in New Jersey, where a federal judge concluded that Kalshi’s contracts fall under the Commodity Exchange Act and therefore sit within the Commodity Futures Trading Commission’s jurisdiction. That case is now under appeal, with 34 state attorneys general backing New Jersey’s position.

Regulatory Pressure Continues to Mount

Beyond Tennessee, Kalshi faces enforcement actions or legal disputes in Ohio, New York, Connecticut, Massachusetts, and Illinois. Other prediction market platforms have also drawn scrutiny, with regulators in Montana and Arizona issuing cease-and-desist orders and Coinbase launching legal challenges after similar actions in multiple states.

Even though prediction markets continue to post strong growth metrics and attract mainstream attention, Tennessee’s intervention highlights the fragile regulatory footing of the sector. As states assert their authority over sports-related contracts, the outcome of these cases may determine whether prediction markets can scale nationally or remain constrained by state-by-state enforcement in 2026 and beyond.