Kalshi scored another win in federal court against the state of Tennessee that reaffirms that it can continue offering sports prediction markets in the Volunteer State … for the time being.
Judge Aleta Trauger of the Nashville Division of the U.S. District Court for the Middle District of Tennessee granted the company a preliminary injunction on Thursday and dismissed the Tennessee Sports Wagering Council (SWC) from the case, which is purely focused on Kalshi’s sports event contracts.
In her memorandum of reasoning, Trauger agreed with Kalshi’s assertion that the sports event contracts that it offers nationwide fall under the definition of “swaps” in line with the Commodity Exchange Act (CEA). The decision comes five weeks after the court issued a temporary restraining order (TRO) against the SWC that stopped Tennessee’s gaming regulator from enforcing state gaming laws against the operator.
Kalshi likely to succeed, says judge
Kalshi sued the SWC, the council’s Executive Director Mary Beth Thomas, and Tennessee Attorney General Jonathan Skrmetti on Jan. 9, the same day on which it received a cease-and-desist order from the gaming regulator. In cease-and-desist letters to Kalshi, Polymarket, and Crypto.com, the SWC equated sports event contracts with illegal sports wagering.
Put simply, Trauger disagrees. Three days after Kalshi filed suit, she granted the company a TRO. In her newest ruling on the preliminary injunction, the judge wrote that Kalshi is likely to succeed on the merits of the case because sports event contracts are “swaps” under the Commodity Exchange Act (CEA) and, to use Trauger’s words, “conflict preemption applies.”
Trauger referenced the 2010 Dodd-Frank Act amendment to the CEA in her written decision.
“The CEA grants the CFTC ‘exclusive jurisdiction’ over swaps,” states the Judge’s memorandum. “Swaps include ‘any contract … that provides for any purchase, sale, payment, or delivery … that is dependent on the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency [and] associated with a potential financial, economic, or commercial consequence.”
Trauger also added that while Kalshi’s sports contracts may have some similarities to traditional sports betting, the two things are not one and the same.
“Unlike traditional sportsbooks, Kalshi operates an exchange on which gamblers bet against each other, rather than the house,” she wrote. “Thus, Kalshi does not set the odds (they are determined by the market), is not a party to the bets (the two people on either end of the bet are), and has no interest in who wins (Kalshi makes money by charging fees for each trade).”
Kalshi met burden of proof for ‘irreparable injury’
In its lawsuit, Kalshi claimed that it would suffer “irreparable harm” if it was forced to stop offering sports contracts in Tennessee immediately, as demanded in the SWC’s cease-and-desist notice. It also accused Skrmetti’s office of changing its stance on sports contracts in the space of a few months, and also claimed to have reached out to the AG’s office seeking a dialogue over the issue.
Trauger agreed with the irreparable harm notion, writing that the company has met its burden to show a likelihood of “irreparable injury” if it were not granted a preliminary injunction. The judge added that she was unconvinced by Tennessee authorities’ arguments that Kalshi has not shown that its Tennessee users would stop using the platform, and that Kalshi could easily comply with both Tennessee law and the CEA at the same time.
“A company may suffer irreparable harm even if only some of its business is affected,” wrote Trauger. “It is unclear how Kalshi could operate a nationwide exchange subject to Tennessee’s restrictions. And, as Kalshi has shown, complying with the Letter’s demands would be difficult and costly. Moreover, Kalshi has shown a likelihood of reputational harm among Tennessee users, notwithstanding the opinions of some courts that have sided against it.
“Kalshi faces substantial expenses and reputational harm if it complies with Tennessee’s demands, or civil and criminal enforcement if it does not. Tennessee, meanwhile, is likely to face no harm because the court finds its enforcement in this case is likely preempted. And, if the defendants succeed on the merits, the court can then pursue enforcement against Kalshi.”
Attorney General’s office remains undeterred
So, for now, Kalshi can proceed freely with offering sports in Tennessee as the case continues. Kalshi declined to comment when asked by SBC Americas, which also reached out to the SWC and the AG’s office for this story.
“We are reviewing the decision and exploring next steps,” Skrmetti’s office told SBC Americas. “We continue to believe Kalshi’s position is premised on unconstitutional agency overreach and look forward to getting more clarity on the limits of that authority.”
Decision contrasts with Nevada and Maryland
The latest Tennessee decision stands in stark contrast with recent rulings in Nevada and Maryland. In Nevada, Judge Andrew Gordon dissolved a preliminary injunction that he previously issued to Kalshi and determined both that sports contracts are not swaps and that Kalshi could not sufficiently prove its claims of impending irreparable harm.
Meanwhile, Kalshi also got a small reprieve in its Massachusetts state court case this week when an appeals court judge granted the company’s request to stay a ruling that granted the state’s AG a preliminary injunction against the operator.
Kalshi is also involved in active federal court cases in Connecticut, New Jersey, New York and Ohio and has just been sued in Nevada state court by the Nevada Gaming Control Board, which Kalshi sued in federal court. That came after an appeals court rejected Kalshi’s bid for a temporary stay in its federal case against the Nevada regulator.
