Tennessee Bans Crypto Sports Betting, Supreme Court Battle Looms

The Tennessee Sports Wagering Council issued cease-and-desist letters to Polymarket, Kalshi, and Crypto.com on Friday, demanding an immediate halt to all sports-related prediction markets accessible to state residents. The order, reported by Decrypt, also requires the companies to refund any pending sports wagers to customers by the end of the month. This action represents Tennessee’s latest attempt to assert control over what it views as unlicensed sports betting operating within its borders.

In its justification, the Tennessee regulator highlighted the platforms’ failure to implement basic consumer protections mandated for gambling operators in the state. These include verifying that all participants are over 21 years old, providing self-exclusion lists for individuals struggling with gambling addiction, and instituting limits on betting amounts and time spent on the platforms. The state has threatened fines of up to $25,000 per violation against each company for non-compliance with its rules.

The three companies—Polymarket, Kalshi, and Crypto.com—are unlikely to comply with Tennessee’s directive, continuing a pattern of defiance against state-level bans. They have consistently argued, for months, that the sports prediction markets they operate are not gambling products under state law. Instead, they classify them as federally regulated “event contracts,” which they claim fall under the jurisdiction of the Commodity Futures Trading Commission (CFTC), not state gaming authorities.

This legal strategy has proven resilient. Other states, including Illinois, Connecticut, and Michigan, have moved to ban these platforms from offering sports prediction markets without complying with local gambling regulations. Despite these orders, Polymarket, Kalshi, and Crypto.com have continued their operations, creating a patchwork of unenforced state prohibitions. Representatives for the three companies did not immediately respond to requests for comment from Decrypt following the Tennessee action.

The economic incentive for this defiance is substantial, making the relatively modest state fines a calculated risk. Data from Dune analytics reveals the immense scale of the business at stake. In the last year alone, Kalshi saw over $23.8 billion in trading volume on its sports-related markets. This figure constitutes more than 80% of Kalshi’s total business, underscoring why the company and its peers are willing to fight state regulators in court.

The standoff in Tennessee is the latest escalation in a broader legal conflict over the jurisdictional authority governing prediction markets. As state regulators like the Tennessee Sports Wagering Council push to litigate these questions, the industry’s leading players have not been passive. They have proactively filed their own lawsuits seeking clarity on the regulatory framework, a move that legal observers believe is designed to fast-track the issue to the highest court in the land.

The core legal question—whether these digital platforms are offering illegal sports betting or legitimate, federally overseen financial contracts—remains unresolved. This ambiguity has allowed the “exploding, legally ambiguous industry,” as described in the source material, to operate in a grey area. The simultaneous legal pressure from multiple states and counter-suits from the companies creates the perfect conditions for a circuit split, where different federal appeals courts could issue conflicting rulings on the same fundamental issue.

Such a split is often the catalyst for Supreme Court review. The escalating clash between state sovereignty over gambling regulation and the companies’ claims of federal preemption is therefore poised to eventually head to the Supreme Court. A definitive ruling from the justices would finally determine whether platforms like Polymarket, Kalshi, and Crypto.com can operate nationwide under a federal banner or must seek licenses and comply with the gambling laws of all fifty states.