Tennessee Sends Cease-and-Desist Orders to Polymarket, Kalshi, and Crypto.com Over Sports Betting Contracts

Tennessee regulators have issued cease-and-desist orders to prediction market platforms Polymarket, Kalshi, and Crypto.com. The Tennessee Sports Wagering Council (SWC) accused the firms of offering unlicensed sports wagering products, violating state law. The regulator emphasized that these contracts fall under the same category as traditional sports betting.

The SWC has given the platforms until January 31, 2026, to halt all sports betting contracts in the state. The order requires all current contracts to be voided and funds to be refunded to affected users. Noncompliance could lead to civil fines of up to $25,000 per violation and potential criminal referrals.

Tennessee's action signals a broader regulatory challenge for prediction markets. The state has argued that prediction markets lack key consumer protections such as age verification and anti-money laundering controls. The regulator has also raised concerns about state tax revenues and market integrity.

Why Did This Happen?

Tennessee has long maintained that prediction markets offering sports-related contracts are functionally equivalent to unlicensed sports betting. The SWC cited state law, which requires all sports betting operators to hold a state license. The regulator stated that the platforms' use of the term "event contracts" does not exempt them from existing gambling laws.

The regulator also cited broader consumer protection issues. It noted that licensed sportsbooks in Tennessee are subject to strict regulations, including responsible gambling tools and identity verification. Prediction markets, the regulator argued, do not meet these requirements.

What Are Analysts Watching Next?

Tennessee's action is part of a growing regulatory trend. Connecticut issued similar orders in December 2025, and Kalshi has filed a motion for a preliminary injunction to challenge the state's authority. The outcome of these cases may influence how other states approach prediction markets.

Kalshi has argued that its platform is federally regulated under the Commodity Futures Trading Commission (CFTC) and should not be subject to state gambling laws. The company claims it operates under a different regulatory framework than traditional sportsbooks.

The regulatory uncertainty is also prompting legislative action. A proposed bill, the Public Integrity in Financial Prediction Markets Act, aims to extend insider trading rules to prediction markets. The bill would bar federal officials from betting on political outcomes where they may have access to nonpublic information.

What This Means for Prediction Markets

The Tennessee crackdown raises questions about the future of prediction markets in the U.S. If states continue to enforce their own gambling laws, prediction market operators may face significant operational and compliance burdens. The industry will likely continue to push for a consistent federal regulatory framework.

Meanwhile, the recent surge in betting activity on political events, such as the capture of Venezuelan President Nicolás Maduro, has intensified scrutiny. Lawmakers have raised concerns about whether certain trades may reflect insider knowledge. These concerns could lead to increased oversight or even new restrictions on market participation.

Investors and market participants are closely watching how this regulatory landscape evolves. The outcome of current legal challenges and legislative proposals will shape the future of prediction markets and determine whether they remain a viable financial tool or face stricter constraints.