Tennessee regulators have taken enforcement action against several high-profile prediction market platforms, ordering them to halt sports-related contracts offered to residents in the state. The Tennessee Sports Wagering Council (SWC) sent cease-and-desist letters to Kalshi, Polymarket, and Crypto.com, asserting that the firms are offering unlicensed sports wagering products in violation of state law.

The letters, dated January 9, instruct the companies to immediately stop providing sports event contracts to Tennessee customers, cancel all existing contracts involving state residents, and refund customer funds by January 31. Regulators warned that failure to comply could result in escalating civil penalties and possible referrals to law enforcement.

State Regulators Cite Licensing and Consumer Protection Issues

The SWC alleges that the platforms’ sports-related offerings fall under the definition of wagering as outlined in the Tennessee Sports Gaming Act. Under that framework, only operators licensed by the state may accept wagers on sporting events. The council maintains that none of the three companies holds the required authorization or pays the privilege tax imposed on licensed sportsbooks.

In a letter sent to Polymarket, SWC Executive Director Mary Beth Thomas wrote that the company’s contracts do not meet state standards. “The sports events contracts offered on [the prediction platform’s] exchange are not compliant with these protections (and many others) and are an immediate and significant threat to the public interest of Tennessee,” the cease-and-desist reads, according to CoinGape. “Even if it did offer these protections, [the prediction platform] does not have the required license issued by the SWC and does not pay the privilege tax mandated by the state.”

Nearly identical language appeared in the letters sent to Kalshi and to Crypto.com’s North American Derivatives Exchange. The regulator also stated that “Interactive sports wagering” may only be conducted by state-licensed operators.

The SWC outlined potential penalties for noncompliance, including fines of $10,000 for an initial violation, $15,000 for a second offense, and $25,000 for subsequent violations. The council also warned that continued activity could lead to injunctive relief and referrals to law enforcement. Under Tennessee law, aggravated gambling promotion can carry misdemeanor or felony charges depending on the circumstances.

Federal Oversight Versus State Authority

Kalshi, Polymarket, and Crypto.com operate as designated contract markets registered with the Commodity Futures Trading Commission, which allows them to list event-based derivatives at the federal level. The companies have argued that this federal oversight preempts state gambling laws, though courts have issued mixed decisions on how far that protection extends.

A Kalshi spokesperson previously stated that the company’s offerings are “very different from what state-regulated sportsbooks and casinos offer their customers.” Regulators in Tennessee rejected that distinction, arguing that the contracts function as wagers regardless of how they are labeled.

The Tennessee action follows similar steps taken by other states. In December, the Connecticut Department of Consumer Protection issued cease-and-desist orders to Kalshi, Crypto.com, and Robinhood. Kalshi responded by filing a motion for a preliminary injunction against Connecticut’s order. According to sports betting attorney Daniel Wallach, the state has opposed that motion, arguing that the company cannot demonstrate irreparable harm from halting what Connecticut describes as unlawful conduct.

Tennessee officials copied the cease-and-desist letters to Attorney General Jonathan Skrmetti, who has supported legal challenges brought by other states against prediction market platforms.

Growing Political and Regulatory Scrutiny

The enforcement effort comes as prediction markets face increased attention from lawmakers. Debate intensified after a Polymarket trader earned more than $400,000 on a wager related to Venezuelan President Nicolás Maduro shortly before his detention. The timing of that trade prompted allegations of possible insider activity.

In response, Representative Ritchie Torres introduced the Public Integrity in Financial Prediction Markets Act of 2026, which would restrict political insiders from participating in such markets. The proposal has drawn support from more than 30 House Democrats, including former Speaker Nancy Pelosi.

Representative Dina Titus also raised concerns about compliance, writing to Polymarket Chief Executive Officer Shayne Coplan to ask about safeguards designed to prevent insider trading and ensure fair market operation. Tennessee regulators have separately warned that prediction markets could undermine state tax revenue generated by licensed sportsbooks.

For Polymarket, the Tennessee order represents the first publicly disclosed state-level cease-and-desist targeting the platform. The company reentered the U.S. market last year after acquiring derivatives exchange and clearinghouse QCEX for $112 million and began opening its app to waitlisted users in December.

Whether the dispute leads to further litigation in Tennessee remains uncertain, though Kalshi’s prior legal challenges suggest that the broader conflict between state regulators and federally regulated prediction markets is likely to continue.