Tennessee Federal Court Sides With Kalshi, Breaking From Federal Rulings in Nevada and Maryland
A Tennessee federal judge ruled that Kalshi is likely to succeed in arguing that its sports-event contracts qualify as swaps under the CEA, deepening a split with other courts over federal preemption.
A federal judge in Tennessee has granted Kalshi a preliminary injunction, holding that the prediction market operator is likely to succeed on its claim that its sports event contracts qualify as “swaps” under the Commodity Exchange Act (CEA) and that federal law likely preempts Tennessee’s sports wagering regulatory scheme.
In a Feb. 19 order, Judge Aleta A. Trauger of the U.S. District Court for the Middle District of Tennessee held:
“Plaintiff KalshiEX LLC’s Motion for Preliminary Injunction (Doc. No. 6) is GRANTED as to the state-official defendants and DENIED as to the Tennessee Sports Wagering Council, which is DISMISSED from this case.”
The court required Kalshi to post a $500,000 bond.
The ruling follows an earlier temporary restraining order (TRO) issued by Judge Trauger, which blocked Tennessee regulators from enforcing their cease-and-desist order against Kalshi while the case is ongoing.
In granting the preliminary injunction, the court reiterated that Kalshi “is likely to succeed on the merits of its claims and its rights will likely be violated by Defendants (SWC) through the enforcement of preempted state laws.”
The court further found that Kalshi “will suffer irreparable injury and loss” if Tennessee were permitted to enforce its cease-and-desist.
The latest ruling breaks from federal decisions in Nevada and Maryland, where courts have sided with state regulators on the ongoing battle over whether sports event contracts fall under the Commodity Futures Trading Commission’s (CFTC) jurisdiction.
Tennessee: An Outcome Can Be an “Event”
The core dispute was whether Kalshi’s contracts satisfy the CEA’s definition of a “swap.” Tennessee regulators argued the contracts depend on the outcome of sporting events, not the “occurrence” of an event.
Judge Trauger rejected that distinction. In her memorandum opinion, she wrote:
“For example, the Titans won a Super Bowl, that would be a significant occurrence, something that happened or took place, and an occurrence of some importance with an antecedent cause — perhaps better coaching. Put another way, a three-hour-long game, and the Titans’ winning that game, are both occurrences of events.”
She added,
“President Trump winning the 2024 presidential election was an outcome, but also an event.”
She then applied a broader reading of the statutory requirement that a swap be “associated with a potential financial, economic, or commercial consequence,” concluding that the CEA’s swap definition can be satisfied even when the economic consequences are indirect.
After determining the contracts qualify as swaps, Judge Trauger pointed to the CEA’s grant of “exclusive jurisdiction” over swaps traded on designated contract markets. She found that Tennessee’s regulatory scheme likely conflicts with federal law under both impossibility and obstacle preemption theories.
Attorney and appellate litigator Andrew Kim summarized the holding on X:
“Departing from Judge Gordon’s ruling in Nevada, Judge Trauger holds that Kalshi’s event contracts are swaps. On the occurrence vs. outcome question, Judge Trauger concludes that the outcome of an event can be an occurrence, too.”
Kim wrote that the conflicting rulings increase the likelihood that the issue ultimately reaches the U.S. Supreme Court.
How Tennessee Breaks From Other Courts
Tennessee’s ruling diverges from both federal and state court decisions that have sided with regulators — though not always for the same reasons.
Nevada (Federal): “Outcome” Is Not an “Event”
In Nevada, Judge Andrew Gordon dissolved a previously granted injunction and ruled that Kalshi’s sports contracts are not swaps. He interpreted the statutory language narrowly, writing:
“An ordinary American interpreting the word ‘event’ would conclude that the Kentucky Derby is an event. But who wins the Kentucky Derby is an outcome of that event, not a separate event in and of itself.”
He further held:
“Event contracts that turn on the outcomes of sporting events are not swaps and thus do not fall within the CFTC’s exclusive jurisdiction.”
The Tennessee ruling rejects that reasoning, concluding outcomes may qualify as occurrences.
Maryland (Federal): Assumed “Swap,” Rejected Preemption
Maryland also reached the opposite result to the Tennessee ruling, but through a different analytical path. In KalshiEX LLC v. Martin, the District of Maryland denied Kalshi’s request for a preliminary injunction.
Rather than resolve the threshold swap question, the court stated that it will “assume without deciding” that Kalshi’s sports event contracts are swaps. Even under that assumption, the court concluded that:
“Kalshi has failed to show a likelihood of success on the merits of its claim that the Commodity Exchange Act preempts Maryland’s gaming laws.”
The opinion emphasized federalism principles, stating:
“There is a strong presumption against preemption.”
It further stressed that:
“It is well recognized that regulating gambling is at the core of the state’s residual powers as a sovereign in our constitutional scheme.”
In short, Maryland assumed swap status but found no clear congressional intent to displace state gaming regulation.
Massachusetts (State Court): Granted Injunction Under State Law
Massachusetts has likewise granted injunctive relief to state regulators, though through a state court proceeding rather than a federal district court.
In January, the Suffolk Superior Court granted the Commonwealth’s motion for a preliminary injunction. The court held:
“Kalshi is enjoined from offering sports-related event contracts in the absence of the required license under the Sports Wagering Law.”
Like Maryland, the Massachusetts court rejected Kalshi’s preemption arguments. It concluded that the CEA does not clearly displace traditional state authority over sports wagering.
However, because the case is in state court, it does not carry the same federal interpretive weight as the district court rulings in Tennessee, Nevada, or Maryland.
A Growing Federal Split
The Tennessee ruling further complicates an already divided federal landscape.
On the core threshold question — whether sports event contracts qualify as “swaps” under the CEA — courts are now openly split:
- Tennessee: Yes. Outcomes can qualify as occurrences under the statute.
- Nevada: No. An outcome is not an event.
- Maryland: Assumed, but declined to decide.
The divide widens further on preemption:
- Tennessee: Federal law likely preempts state gaming regulation.
- Maryland: No preemption, even assuming swap status.
- Nevada: No preemption after dissolving the injunction.
Gaming attorney Daniel Wallach summarized the divergence:
“Courts have taken two divergent paths in deciding prediction market cases. NJ and TN (both Kalshi wins) have focused narrowly on whether sports contracts are ‘swaps.’ MA and MD (both state wins) focused more broadly on ‘congressional intent’ as the touchstone. NV combines both.”
The result is a clear split among courts — not just over preemption, but over the meaning of “swap” itself.
With appeals pending in the Third, Fourth, and Ninth Circuits, the question of whether prediction markets fall under the CFTC’s jurisdiction and preempt state gambling laws now sits before appellate courts.
Image Credit: Famartin via Wikimedia Commons (license)
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