US District Court Says Prediction Market Operator Exempt from State Regulation

A U.S. District Court issued a preliminary injunction preventing Tennessee officials from enforcing state sports wagering laws against a prediction market operator.  

The U.S. District Court for the Middle District of Tennessee enjoined state officials from enforcing a cease-and-desist letter that demanded prediction market operator KalshiEX, LLC. ("Kalshi") cease offering contracts on sporting events—such as predicting game winners or player performance—unless it complies with state sports wagering licensing requirements. The Court recognized that Kalshi operates a federally designated derivatives exchange for "event contracts" overseen by the CFTC. The company contended that complying with state restrictions would be impossible and disrupt uniform federal oversight, asserting that its federal registration and the Commodity Exchange Act shielded it from state gambling regulations.

The Court accepted the company's assertion that federal law preempted state regulation. The Court held that Kalshi was likely to succeed on the merits and determined that federal commodities law preempts the state's regulation of these transactions. The Court also found that Kalshi's sports event contracts qualify as "swaps," placing them under the exclusive jurisdiction of the CFTC. Further, the Court decided there was a direct conflict preventing the company from complying with both federal and state regulations, finding that requiring state licensure would violate federal mandates for impartial nationwide market access and obstruct Congress's objective of uniform derivatives regulation.

The Court granted Kalshi's request for a preliminary injunction against the individual state officials and denied it for the state agency defendant, prohibiting Tennessee from pursuing enforcement actions against the company while the litigation proceeds.