Tennessee Judge Casts Doubt on CFTC Authority Over Sports Prediction Markets
A Tennessee federal judge has raised serious doubts about whether sports prediction markets belong under financial trading laws, putting fresh pressure on Kalshi.
A federal judge in Tennessee has questioned whether sports prediction contracts qualify as financial “swaps” under the Commodity Exchange Act (CEA) as part of the ongoing case between the Tennessee Sports Wagering Council (SWC) and Kalshi over the legality of sports contracts in the state.
On Feb. 9, Judge Aleta Trauger said, “What troubles me is that under Loper Bright, the agency doesn’t just get to decide what a swap is,” casting doubt on the Commodity Futures Trading Commission’s (CFTC) authority to classify the contracts.
She added that the Dodd-Frank Act was aimed at “something very, very different from sports betting. Sports wagering. It was, of course, the mortgage crisis.”
Trauger explained that lawmakers introduced Dodd-Frank to address the mortgage crisis. Before the 2008 financial crisis, banks and insurers traded swaps, including credit default swaps, in private, unregulated markets.
This activity helped trigger the collapse of Lehman Brothers and nearly brought down AIG. Congress passed Dodd-Frank in 2010 to move swaps onto regulated exchanges, making positions visible to regulators.
Debate Centers on What Counts as a Swap
Kalshi’s legal counsel, Will Havemann, argued that Congress used a “broad framing” when drafting the statute and tied Dodd-Frank to “potential economic, financial, or commercial consequences,” adding that sports are “big business” in the U.S.
According to excerpts shared by gaming attorney Daniel Wallach, Judge Trauger questioned how a team covering a point spread or a basketball player hitting a three-pointer would create a “financial consequence” under the CEA.
She distinguished those outcomes from traditional commercial activity, such as ticket sales, which carry clearer economic effects.
During the exchange, she pressed Havemann on timing, asking whether any such consequences were immediate, responding, “But not right away. Not right away.”
SWC Enforcement Action Sparks Federal Lawsuit
The case started on Jan. 6, when the SWC sent cease-and-desist letters to Kalshi, Polymarket, and Crypto.com. The council ordered the platforms to stop accepting prediction market bets in the state.
It also told them to void pending contracts and issue refunds by the end of January. Regulators said the platforms operated unlicensed sports betting, failed to pay state taxes, and ignored consumer protections, including age verification rules.
Kalshi quickly filed a federal lawsuit seeking to block what it described as an “unlawful attempt” to shut down its operations. On Jan. 12, a federal judge issued a temporary restraining order preventing the SWC from enforcing the cease-and-desist.
On Jan.20, a Massachusetts judge ruled that Kalshi must stop offering sports-related contracts while litigation continues. Tennessee authorities later cited that decision while opposing Kalshi’s request for a preliminary injunction.
High-Profile Incident at the University of Tennessee
A separate incident has intensified scrutiny about prediction markets in the state. The University of Tennessee fired a member of its student broadcast team after discovering bets placed on Kalshi during the 2025 college football season.
Some contracts involved the university’s own team. Monitoring service ProhiTrade flagged the activity. This led to the student’s suspension and eventual removal from the role. The National Collegiate Athletic Association has not issued sanctions.
This marks one of the first high-profile NCAA cases tied to prediction markets. NCAA President Charlie Baker urged the CFTC to suspend college sports contracts until stricter safeguards are in place. He warned that game integrity and athlete welfare now face real risks. Baker also singled out Kalshi for offering college-related contracts.
With regulators watching closely and lawsuits unfolding across multiple states, the case may help determine whether platforms like Kalshi operate as federally regulated exchanges or unlicensed sportsbooks under state law. This distinction could reshape how event-based markets function nationwide.
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