In cease-and-desist letters sent on Friday, the SWC accused all three platforms of offering sports betting products without a license under the Tennessee Sports Gaming Act. According to the regulator, rebranding wagers as “event contracts” does not change their economic reality: users are still staking money on the outcomes of sporting events. That distinction, the council argues, is where state law draws a firm boundary.

The “Event Contract” Defense Hits a Wall

The SWC said Kalshi and Polymarket are effectively replicating activities reserved exclusively for licensed sportsbooks. Regulators also highlighted the absence of core consumer protections, including age verification, responsible gaming tools and anti–money laundering safeguards. In the council’s view, those gaps elevate the platforms from regulatory gray areas into immediate public-interest risks.

As a result, Tennessee ordered the companies to void all sports-related contracts involving state residents and refund all user balances by January 31, 2026. Failure to comply could trigger fines of up to $25,000 per violation, court injunctions and referrals to law enforcement for further investigation.

Federal vs. State Authority: The Conflict Deepens

Kalshi and Polymarket maintain that they operate as CFTC-registered contract markets and that federal commodities law preempts state gambling regulations. Tennessee flatly rejects that interpretation, insisting that federal registration does not nullify the state’s authority over sports wagering within its borders.

That legal fault line is widening. Several states, including Connecticut, have already taken similar action, producing mixed judicial outcomes. A federal judge recently paused enforcement of Connecticut’s cease-and-desist order against Kalshi, but Tennessee’s move suggests states are not backing down.

Kalshi is now facing regulatory challenges in New York, Massachusetts, New Jersey, Nevada, Maryland and Ohio. Despite the growing legal pressure, trading volumes on prediction markets continue to climb, underscoring the stakes of the dispute.

A First for Polymarket, the Ninth State Overall

The Tennessee action appears to be the first publicly disclosed state-level shutdown order specifically targeting Polymarket. More broadly, Tennessee has become at least the ninth state to formally move against prediction markets tied to sports outcomes.

State officials have repeatedly warned that these platforms threaten licensed sportsbooks and the tax revenues they generate for public programs. SWC Executive Director Mary Beth Thomas described the contracts as incompatible with Tennessee’s consumer protection framework and an urgent danger to the public interest. Nearly identical language appeared in letters sent to Kalshi and Crypto.com.

Lawsuits Loom, Uncertainty Persists

Kalshi has already responded by filing suit in federal court, calling Tennessee’s action an unlawful intrusion into federally regulated markets. Polymarket and Crypto.com have yet to issue formal statements, though gaming law experts expect additional lawsuits to follow.

For now, the picture remains unsettled. States are accelerating enforcement, while federally regulated platforms seek shelter in the courts. This is not merely a technical jurisdictional dispute. It signals a deeper fracture over who controls the future of sports betting—and where the next legal boundary will be drawn.

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