The ongoing dispute between prediction market platforms and US state authorities has escalated. Last week, the Tennessee Sports Wagering Council (TSWC) took decisive action against three major digital players: Kalshi, Polymarket and Crypto.com.
The platforms were formally notified that they are offering sports betting services without the required local licences. This highlights the legal uncertainty surrounding ‘event contracts’, financial instruments that allow users to bet on the outcome of sporting events.
Reasons for the cease-and-desist orders against Kalshi, Polymarket and Crypto.com
The core of the dispute lies in the interpretation of Tennessee’s Sports Gaming Act. Although these companies present themselves as prediction markets or exchanges, the state considers the contracts they offer to be illegal sports betting.
Gaming lawyer Daniel Wallach publicly shared the cease-and-desist letters via X. The notices make it clear that providing contracts tied to sporting events in Tennessee requires explicit authorisation, which none of the three companies currently hold.
At the federal level, the platforms are registered with the Commodity Futures Trading Commission (CFTC). However, federal approval does not exempt them from state gambling laws, which are stricter and enforced independently by each state.
Sanctions and deadlines imposed by the Sports Betting Council
The TSWC’s action goes beyond a warning. The platforms are required to:
- Immediately stop offering sports event contracts to Tennessee residents
- Cancel all ongoing contracts
- Refund users in full by the end of January
Failure to comply within three weeks could result in civil fines ranging from £7,000 for a first offence to £17,000 for subsequent offences, and potentially criminal charges for “aggravated promotion of gambling,” classified under Tennessee law.
Moving towards clarity on the status of prediction markets
This situation places Kalshi, Polymarket and Crypto.com in a legal grey area: they aim to innovate with financial products based on real-world probabilities, but face the sovereignty of state gambling regulations.
The cease-and-desist letters explicitly classify these contracts as betting under Tennessee law, making any marketing or operation without a local licence illegal.
The involvement of Crypto.com shows that regulatory pressure is not limited to prediction market specialists; even major digital asset companies diversifying their services are affected.
A precedent for the event contracts industry
The outcome of this dispute could set a precedent for the US prediction market model. If the platforms challenge the TSWC’s decision in court, the case would likely focus on the relationship between federal CFTC approvals and state gambling authority powers.
In the short term, other states will likely monitor how Kalshi, Polymarket and Crypto.com respond. This may lead to a patchwork of state-by-state regulations, forcing platforms to adopt extremely restrictive compliance measures to continue operating in multiple states.
Source: @WALLACHLEGAL
