Tennessee’s Kalshi Fight Highlights Major Potential Turning Point for Prediction Markets

Prediction Markets: “Bets” or “Event Contracts”?

At the center of the regulatory debate is a deceptively simple question: when someone puts money on whether the Tennessee Titans will win a football game, does it matter whether the platform calls the transaction a “bet” or an “event contract”?

Tennessee says it does not.

The state’s Sports Wagering Council moved against Kalshi, Polymarket, and Crypto.com in January, ordering the platforms to stop offering sports-related prediction markets to Tennessee residents. Regulators argued that the contracts amount to sports wagering and therefore cannot be offered without complying with Tennessee’s licensing, taxation, age, and consumer-protection requirements.

Prediction market operators see it very differently. Their argument is that event contracts are federally regulated financial instruments overseen by the Commodity Futures Trading Commission, or CFTC. If that interpretation prevails, states may have little authority to regulate them as gambling products at all.

The distinction might sound technical, but billions of dollars and the future shape of the U.S. sports betting industry could depend on it.

The controversy has also exposed an increasingly awkward reality: as prediction markets expand aggressively into sports, many of their products are becoming almost indistinguishable to ordinary users from what they can already find at DraftKings, FanDuel, or BetMGM.

The question now facing courts is whether being structured like an exchange is enough to make them legally different.

On Jan. 9, the Tennessee Sports Wagering Council sent cease-and-desist letters targeting sports event contracts offered by Kalshi, Polymarket, and Crypto.com.

The state demanded that the platforms stop offering the products to Tennessee customers, void outstanding contracts, and return customer funds.

Tennessee’s position is straightforward. Under its Sports Gaming Act, companies taking wagers on sporting events must be licensed by the state and comply with a regulatory framework that includes consumer protections, minimum age requirements, responsible gambling measures, and taxes.

Kalshi does none of that as a Tennessee sportsbook because it insists that it is not a sportsbook.

Instead, Kalshi operates a federally designated contract market. Users buy and sell contracts whose settlement depends on whether an event occurs. A contract asking whether an NFL team will win a particular game might trade at 65 cents, roughly representing a market-implied 65% probability. If the event occurs, a winning contract settles at $1. If not, it settles at zero.

The economic experience for the customer can look remarkably similar to gambling.

But the market structure is different.

A traditional sportsbook takes the opposite side of a customer’s wager and sets prices designed to manage its own exposure. On Kalshi, users generally trade against other market participants. The exchange facilitates the transaction, and prices emerge from buyers and sellers rather than from a bookmaker determining the odds.

That difference is central to Kalshi’s legal defense.

It may also be the distinction that ultimately determines whether America develops one national prediction-market regime or dozens of state-by-state gambling regimes.