Tennessee Cracks Down on Prediction Markets : Cease-and-Desist Orders Hit Kalshi, Polymarket, Crypto.com

Tennessee regulators have issued cease-and-desist letters to prediction market platforms Kalshi, Polymarket, and Crypto.com. The Tennessee Sports Wagering Council (SWC) claims these platforms are illegally offering sports betting without proper licensing.

The letters demand that all three companies halt the sale of sports event contracts to Tennessee residents. They must also void existing contracts and refund user deposits by January 31, 2026.

Failure to comply could result in civil fines of up to $25,000 per violation. The regulator also warned that noncompliance could trigger criminal referrals for aggravated gambling promotion, a felony under state law.

Why Did This Happen?

Tennessee regulators argue that the platforms' sports event contracts are essentially illegal gambling products. The SWC stated that Tennessee law reserves the offering of sports bets to licensed operators.

The regulator emphasized that these platforms do not meet the consumer protection requirements of licensed operators. These include age restrictions, responsible gaming tools, and anti-money laundering controls.

The SWC also highlighted that its actions are part of a broader regulatory push against prediction markets. The regulator previously urged the CFTC to prohibit sports event contracts.

What Are Analysts Watching Next?

All three platforms are registered with the CFTC, which has granted them the status of designated contract markets. However, Tennessee regulators argue that this federal designation does not override state gambling laws.

The platforms may challenge the order in court. Similar enforcement actions in other states have led to legal battles over federal preemption and the classification of event contracts.

The outcome of this Tennessee action could set a precedent for how other states regulate prediction markets. The SWC warned that it will pursue injunctive relief or law enforcement referrals if the platforms do not comply.

The response from Kalshi, Polymarket, and Crypto.com has been limited so far. A legal battle could escalate, especially given previous actions by Tennessee regulators and attorneys general.

The broader implications for the prediction market sector remain unclear. If more states take similar actions, it could lead to a fragmented regulatory environment. This could challenge the federal preemption argument that these platforms have relied on.

The SWC also cited the risk to state tax revenue generated by licensed sportsbooks. Prediction markets are seen as a threat to the existing sports betting ecosystem.