Federal judge blocks Tennessee from enforcing gambling laws against Kalshi

The legal battle over the regulation of event contracts has shifted in favor of federal oversight following a new court order in Tennessee.

US District Judge Eli Richardson granted a preliminary injunction on Thursday, effectively stopping the Tennessee Attorney General and state regulators from taking legal action against Kalshi. The state had previously classified Kalshi’s election and event contracts as illegal gambling. However, the court ruled that because Kalshi is a designated contract market regulated by the Commodity Futures Trading Commission (CFTC), it operates under the federal Commodity Exchange Act (CEA).

The judge noted that Kalshi demonstrated a high likelihood of success on the merits of its case. Specifically, the court found that federal law likely preempts state-level gambling prohibitions when those laws interfere with CFTC-authorized trading. If the injunction were not granted, Kalshi would suffer irreparable harm through the loss of market access and potential criminal prosecution of its employees.

On the data side, this ruling mirrors a recent legal victory in Nevada, where a state judge also refused to halt Kalshi’s operations. State regulators are increasingly clashing with federal authorities, but federal courts are consistently prioritizing the CEA’s regulatory framework. Kalshi has argued that a patchwork of state-level bans would make it impossible to operate a national clearinghouse for event contracts.

The Tennessee ruling specifically protects Kalshi from the state’s “Illegal Gambling” statutes. The Attorney General’s office argued that the state has a sovereign interest in protecting its citizens from unregulated wagering. Judge Richardson countered that the public interest is better served by upholding federal law and allowing regulated markets to function predictably across state lines.

This decision comes as Kalshi and its competitor, Polymarket, see record volumes following the 2024 election cycle. Unlike Polymarket, which operates offshore, Kalshi’s status as a US-regulated exchange provides it with a unique legal defense against state-level intervention.

For market participants, the injunction ensures that Kalshi remains available to Tennessee residents for the duration of the litigation. The case will now proceed to a full trial, which will further determine the limits of state power in the face of federal financial regulation.