Tennessee Gives Polymarket, Kalshi Until January 31: Criminal Prosecution Looms

Tennessee has given Polymarket, Kalshi, and Crypto.com until January 31 to void all sports contracts held by state residents, refund customer funds, and cease operations—or face escalating fines and criminal prosecution referrals. The cease-and-desist orders, dated January 9, mark Polymarket’s first state-level enforcement action since its November 2025 US relaunch, and position Tennessee as at least the ninth state to formally challenge prediction market platforms over sports-related offerings.

What Tennessee Is Demanding

The Tennessee Sports Wagering Council (SWC) issued cease-and-desist letters to all three platforms on January 9, 2026, alleging violations of the Tennessee Sports Gaming Act. The regulator’s position is unambiguous: “Sports events contracts offered…are Wagers under the Act and are being offered illegally in violation of Tennessee law.”

The orders require platforms to:

Attorney General Jonathan Skrmetti was copied on all three letters—a signal of serious intent. Skrmetti previously joined 37 other attorneys general in an amicus brief supporting Maryland’s lawsuit against Kalshi, and signed onto a June 2025 amicus brief with 33 other AGs challenging federal court rulings favorable to prediction markets.

The Criminal Prosecution Threat

Most coverage will bury the most significant detail: Tennessee isn’t just threatening fines. The letters explicitly warn that continued violations could trigger criminal referrals for aggravated gambling promotion—a felony under Tennessee law.

For Polymarket, which already settled with the CFTC for $1.4 million in 2022 over operating without proper registration, adding state-level criminal exposure represents a serious escalation. The platform’s recent insider trading controversies and Venezuela payout disputes compound the reputational risk.

Polymarket vs. Kalshi: Divergent Legal Positions

Both platforms received identical cease-and-desist orders, but their ability to fight back differs significantly.

Kalshi has already responded. A company spokesperson told The Block that Kalshi “filed a suit in federal court in order to block Tennessee’s unlawful attempt to stop prediction markets in the state.” The company’s argument: “Kalshi is a regulated, nationwide exchange for real-world events, and it’s subject to exclusive federal jurisdiction. It is very different from what state-regulated sportsbooks and casinos offer their customers.”

Polymarket has not publicly responded to the Tennessee order. The platform’s weaker legal standing—shorter regulatory track record, recent settlement history, and less litigation experience—suggests it may be less equipped to mount an aggressive legal defense.

The Federal Preemption Battle

At the core of every state enforcement action is a single legal question: Does CFTC oversight of prediction markets preempt state gambling laws?

Federal courts have issued contradictory rulings:

The split among federal courts makes the outcome in any new state unpredictable. Nevada’s recent reversal—dissolving an injunction that had protected Kalshi—demonstrates that even initially favorable rulings can flip. Judge Andrew Gordon ruled that Kalshi’s expanded sports products, including prebuilt parlays and player-prop-style markets, “are not swaps under the Commodity Exchange Act.”

The State Enforcement Map

Tennessee joins a growing list of states taking formal action against prediction market platforms:

The pattern is clear: states are acting, and they’re sharing enforcement templates. Tennessee’s letters will be studied by AG offices nationwide. States that were on the fence now have a playbook.

The Cascade Question: Who’s Next?

Tennessee’s action doesn’t exist in isolation. Thirty-eight states joined an amicus brief supporting Maryland’s lawsuit against Kalshi. That coalition represents potential future enforcement—each of those AGs now has legal precedent and enforcement templates to draw from.

Watch for action from:

The question isn’t whether more states will follow Tennessee’s template—it’s how many and how fast. Each successful enforcement action emboldens the next.

Polymarket’s Brutal January

For Polymarket specifically, Tennessee’s enforcement action caps a disastrous week. Within 72 hours, the platform faced:

This isn’t coincidence—it’s a platform under pressure from every direction simultaneously. Regulatory heat from states, mainstream backlash from entertainment audiences, congressional attention from the Torres insider trading bill, and trust erosion from payout disputes.

The Crypto.com Wildcard

Crypto.com’s inclusion in the Tennessee orders deserves attention. Unlike Kalshi and Polymarket, Crypto.com is primarily a cryptocurrency exchange that added prediction markets as a feature—not a prediction market native.

This signals Tennessee is casting a wide net. Any platform offering event contracts to Tennessee residents is a target, regardless of whether prediction markets are their core business. For crypto exchanges considering adding prediction market features, Tennessee’s action is a warning.

Why Sports Contracts Specifically

Tennessee’s orders target sports event contracts specifically—not political or entertainment markets. This is strategic.

Sports betting is where states have the clearest regulatory authority. Every state with legal sports betting has established licensing frameworks and enforcement mechanisms. Political prediction markets occupy murkier legal territory—Kalshi won a federal appeals court case specifically about election contracts.

By targeting sports first, Tennessee is picking a battle it’s more likely to win. If successful, the template could expand to political and entertainment contracts later.

What Happens on January 31

The deadline creates several possible scenarios:

The Connecticut case provides a preview. Kalshi won a temporary injunction there, with oral arguments scheduled for February 12. If Tennessee follows a similar pattern, the January 31 deadline may get extended pending litigation—but only if platforms actively fight back in federal court.

What This Means for Bettors

The Road to the Supreme Court

The contradictory federal court rulings—platforms winning in New Jersey and Connecticut, losing in Nevada and Maryland—create conditions for a circuit split. If the Third Circuit (hearing New Jersey’s appeal) and other circuits reach different conclusions, the prediction market question could ultimately reach the Supreme Court.

The clearest indicator of how this saga plays out will be the Third Circuit’s written opinion. A victory for Kalshi there increases odds of a circuit split, which increases odds of Supreme Court review.

Until then, the industry faces a patchwork of conflicting state actions and uncertain federal precedent. Platforms, regulators, and users are all operating in legal limbo—with Tennessee’s January 31 deadline the next concrete milestone in this ongoing battle.

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Sources

• Tennessee Sports Wagering Council — Official Regulatory Body
• CFTC Press Releases — Federal Regulatory Updates