Tennessee’s Bid to Ban Sports-Event Contracts in Prediction Markets Meets With Pushback

The letters follow similar moves by other states, including Massachusetts, New York, New Jersey, Nevada, Maryland, Arizona and Illinois, and are bound to further fuel the growing conflict over states’ power to regulate the markets.

The states maintain that contracts on the outcome of sporting events constitutes online sports gambling, which they either prohibit by law or require state-issued licenses to offer. According to Decrypt, Tennessee’s action on Friday noted how the companies have failed to institute basic standards required of gambling platforms in the state—including requiring all participants to be over the age of 21, providing self-exclusion lists for gambling addicts, and instituting limits on betting amounts and time spent betting.

For their part, companies insist the sports-related markets on their platforms are federally regulated events contracts, not sports betting, preempting the states’ authority to regulate them.

Prediction markets have grown rapidly in the past few years, driven in large part by sports-related activity. Per Decrypt, Kalshi alone saw nearly $24 billion in trading volume in sports-related contracts in 2025, representing roughly 80% of its total business.

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The markets are typically binary, for instance offering “yes” or “no” contracts on the outcome, timing or size of particular events. The Commodities Futures Trading Commission (CFTC) regulates such exchanges with respect to goods such as agricultural commodities and raw materials, and financial asset futures and derivatives. But historically it has not overseen sports-related markets, leaving them to state gaming authorities to regulate.

Read more: Coinbase Sues Three States Over Prediction Market Regulations

Kalshi, Polymarket and Crypto.com are all CFTC-registered Designated Contract Markets (DCMs), which they claim places them beyond the reach of state authorities. On Friday Kalshi sued Tennessee’s attorney general in federal court in response to the cease-and-desist letter, arguing the state had no legal authority to regulate the platform or force it to stop serving Tennessee residents. It followed that on Monday with a motion requesting a preliminary injunction and an expedited hearing on its filing.

The CFTC has generally required any platform seeking registration as a DCM to meet the same core standards imposed on traditional futures exchanges, including robust compliance and governance programs, market surveillance, clearing arrangements, and customer protections. But it has not formally weighed in on whether sporting-events related markets meet those standards.

Early U.S. prediction markets such as the Iowa Electronic Market and PredictIt were permitted to operate only under CFTC no-action relief and were limited to academic research purposes.

The use of cryptocurrency by traders in some prediction markets has added to their uncertain regulatory status. CFTC-registered DCMs typically have been firmly embedded within traditional, centralized financial infrastructure. The agency only registered its first crypto-native DCM, Gemini Titan, last month.

Even so, Gemini Titan agreed to operate as a centralized exchange as a condition of its designation, offering fiat-collateralized event contracts, with conventional clearing, centralized custody, and standard know-your-customer and anti-money-laundering requirements. For U.S. users, the platform will resemble existing DCM-registered prediction markets rather than decentralized, on-chain systems that rely on smart contracts for settlement and clearing.

Gemini did not specify when trading would begin on its platform, or whether it will offer sports-related contracts.