Published on: February 19, 2026, 09:54h.
Updated on: February 19, 2026, 09:54h.
- Kalshi wins significant federal case against Tennessee authorities
- Court determines that sports event contracts qualify as swaps under the Commodities Exchange Act
- Decision follows a temporary restraining order against state regulators just weeks prior
After an extended series of legal defeats, Kalshi experienced a significant win on Thursday when a federal judge in Tennessee ruled that contracts related to sports events are classified as swaps under the Commodities Exchange Act (CEA).
Judge Aleta Trauger of the US District Court for the Middle District of Tennessee ruled in favor of the prediction market platform in a case centered on the company’s sports derivatives. In her ruling, Trauger emphasized that the Dodd-Frank Act, enacted in 2010 in the wake of the global financial crisis, influences how the CEA applies to event contracts and the regulation of prediction markets by the Commodities Futures Trading Commission (CFTC), including the Special Rule.
“While neither the CEA nor the CFTC’s regulations clearly define the term, under the Special Rule, ‘event contracts’ entail ‘agreements, contracts, transactions, or swaps in excluded commodities that are predicated on the occurrence, extent of an occurrence, or contingency . . . by a designated contract market,’” stated the judge.
She issued a preliminary injunction allowing Kalshi to continue providing sports contracts in Tennessee, five weeks after she granted a temporary restraining order blocking state gaming regulators from enforcing gaming laws against Kalshi.
Judge Clarifies Kalshi’s Distinction from Sports Betting
Sports event contracts represent the primary reason behind Kalshi’s ongoing legal challenges at the state level, an issue shared by other prediction market operators.
Essentially, state regulators, especially in areas where sports wagering is permissible, claim that sports event contracts either mirror or closely resemble traditional sports betting. Consequently, they argue that these companies should be subject to the same regulations as gaming entities.
However, operators of prediction markets assert a different viewpoint. They contend they are not in the business of sports betting but rather are federally regulated firms, making their federal status superior to state regulations. Judge Trauger, appointed by President Bill Clinton, seemingly concurs with this latter point, noting, “Kalshi goes to great lengths to differentiate itself from traditional sports betting.”
“Unlike conventional sportsbooks, Kalshi runs an exchange where bettors compete against one another, as opposed to placing bets against the house,” she noted in her ruling. “As such, Kalshi does not dictate the odds (which are determined by market dynamics), is not a participant in the wagers (the two bettors at either end of the bet are), and bears no interest in the outcome (Kalshi profits from fees on each trade).”
Nonetheless, Trauger recognized that some parallels exist between Kalshi’s event contracts and sports wagers, acknowledging that it’s reasonable for customers to observe these similarities.
Kalshi’s Strong Case Against Tennessee
Kalshi, which is working to extend its offerings beyond sports, likely had a strong case against Tennessee due to federal preemption as well as the classification of sports event contracts as swaps, according to Trauger.
The judge highlighted the vital term “potential,” indicating that when the CEA was enacted, Congress emphasized that swaps must possess – at least theoretically – an economic impact. Thus, sports event contracts need not have an actual economic consequence but merely the potential for economic influence.
“Moreover, the statute employs the term potential financial, economic, or commercial consequences,” Trauger remarked. “Congress could have imposed a more rigid requirement or even excluded the qualifier. Yet, Congress chose to incorporate ‘potential,’ which is broad in interpretation.”
While the Tennessee ruling presents a triumph for Kalshi, it doesn’t ensure that other judges will make similar rulings, nor does it alter the trend of states winning their battles against prediction markets. Additionally, this decision likely does not reduce the possibility of the Supreme Court having the final verdict on such matters.