Federal Judge Shields Kalshi’s $500K Contracts from State Ban

• Tennessee court halts enforcement of local gambling laws against Kalshi
• Decision reaffirms CFTC’s regulatory authority over event contracts

On February 20, 2026, Reuters reported that a federal judge in Tennessee issued a preliminary injunction preventing state officials from applying local gambling laws to Kalshi’s sports-related event contracts. The decision bolsters Kalshi’s position that its contracts qualify as “swaps” under the federal Commodity Exchange Act (CEA), placing them exclusively under the Commodity Futures Trading Commission’s (CFTC) oversight.

U.S. District Judge Aleta A. Trauger ruled in favor of Kalshi, expressing confidence that the platform is likely to succeed on the merits. By defining these contracts as swaps, the court confirmed that state-level gambling laws are preempted by federal regulation, providing Kalshi with a protective legal shield from Tennessee’s restrictions.

Judge Trauger emphasized that enforcing state-level requirements alongside federal regulations would undermine the cohesive framework designed by the CFTC. Kalshi contended that local laws create inconsistencies that obstruct uniform oversight of prediction markets, a key point that the court echoed in its ruling. The decision also aligns with a precedent set in New Jersey, further solidifying Kalshi’s standing against state-level interventions.

Kalshi’s legal challenges across various states underscore ongoing tension between federal oversight and state regulation of prediction markets. The ruling in Tennessee arrives amidst setbacks for Kalshi in some states, like Nevada, illustrating the complex and uneven regulatory landscape. Nevertheless, the February 20 decision reinforces the CFTC’s growing authority and strengthens Kalshi’s legal strategy as it navigates differing state responses.

This case signals the increasing importance of a unified federal framework in ensuring stable regulation of prediction markets. It also demonstrates Kalshi’s determination to expand its operations despite the headwinds presented by state-level legal battles.