A federal judge in Tennessee has granted Kalshi a preliminary injunction on a cease-and-desist order against the company’s sports event contracts, handing it a significant interim victory in its legal battle with the state.
In her 25-page memorandum, Judge Aleta A. Trauger of the US District Court for the Middle District of Tennessee determined that Kalshi is likely to succeed in its pre-emption argument.
Judge Trauger had previously sided with Kalshi in determining that sports prediction markets do not necessarily violate state gambling laws.
She added that federal law, rather than Tennessee’s sports betting rules, governs the company’s sports event contracts on its platform.
The practical effect is immediate, and means that Tennessee cannot enforce its cease-and-desist order against the business while the case proceeds.
The injunction applies to individual state officials, including members of the Tennessee Sports Wagering Council and the state attorney general.
It does not apply to the agency itself, which the court excluded on sovereign immunity grounds.
The case turns on a basic classification fight. Kalshi says its sports event contracts fall exclusively under federal commodities law, while Tennessee says they amount to sports wagering and should be banned under state law.
Tennessee had ordered the company to stop offering sports-related contracts to residents, void existing positions and refund deposits, while threatening fines and possible criminal referral.
The court concluded, however, that the company’s sports contracts qualify as swaps under federal law because they depend on the occurrence of an event and are associated with potential financial consequences.
That classification proved central, as the statute grants the Commodity Futures Trading Commission (CFTC) exclusive jurisdiction over swaps.
Sports outcomes may be event contracts
Judge Trauger rejected Tennessee’s argument that sports outcomes do not constitute qualifying events under the statutory definition of swaps.
The opinion states that both the staging of a match and its result can amount to an ‘occurrence’ within the meaning of the law.
The court also found that the requirement for a potential financial or economic consequence is broad, and can be satisfied by sports-related contracts.
On pre-emption, the court determined that enforcing Tennessee’s licensing, age and location requirements against Kalshi would likely create a direct conflict with federal law.
Federal regulations require designated contract markets to provide impartial and non-discriminatory access to participants nationwide.
Requiring a Tennessee-only structure could undermine that uniform framework and disrupt trading across the platform.
The court further held that Kalshi demonstrated a likelihood of irreparable harm.
Without an injunction, the company would face either civil and criminal exposure or operational disruption, including the voiding of contracts and restrictions affecting tens of thousands of Tennessee users.
The judge found that such harm, including reputational damage and regulatory complications, weighs in favour of interim relief.
As a condition of the injunction, the court ordered Kalshi to post an additional $500,000 bond on top of an earlier security payment. This was in addition to the $500 bond Kalshi already posted.
The ruling does not resolve the case on its merits but blocks enforcement while litigation proceeds.
Similar cases are pending in other federal courts. Kalshi is hoping the decision gives it support in those cases, and has already begun citing it as part of its defence.