Kalshi Scores Legal Win in Tennessee, Judge Rules Sports Event Contracts Are Swaps
Posted on: February 19, 2026, 09:54h.
Last updated on: February 19, 2026, 09:54h.
- Kalshi scores win in federal suit against Tennessee regulators
- Judge rules sports event contracts are swaps under Commodities Exchange Act
- Ruling arrives a month after judge issued a temporary restraining order against the state
Following a lengthy losing streak in court, Kalshi finally notched a legal victory Thursday when a federal judge in Tennessee ruled that sports event contracts are swaps under the Commodities Exchange Act (CEA).
Judge Aleta Trauger of the US District Court for the Middle District Court of Tennessee ruled in favor of the prediction market operator in a case that focused solely on the company’s sports derivatives. In her decision, Trauger points out that the Dodd-Frank Act, passed in 2010 following the global financial crisis, has some bearing on the CEA applies to event contracts and how the Commodities Futures Trading Commission (CFTC) regulates predictions markets, including the Special Rule.
While neither the CEA nor the CFTC’s regulations define the term, under the Special Rule, ‘event contracts’ include ‘agreements, contracts, transactions, or swaps in excluded commodities that are based upon the occurrence, extent of an occurrence, or contingency . . . by a designated contract market,’” wrote the judge.
She granted Kalshi a preliminary injunction to continue offering sports contracts in Tennessee five weeks after she issued a temporary restraining order against state gaming regulators, prohibiting them from enforcing gaming laws on Kalshi.
Kalshi Isn’t Sports Betting, Says Judge
Sports event contracts are the primary, arguably only reason behind Kalshi’s myriad state-level legal spats and those facing other prediction market operators.
In simple terms, state regulators, particularly those in jurisdictions where sports wagering is legal, assert sports event contracts are the same as or remarkably similar to traditional sports wagering. As such, companies offering those derivatives should be regulated the same as gaming entities.
Prediction market operators don’t see things that way. Those companies say they aren’t offering sports betting and that they’re federally regulated enterprises, meaning that status trumps state law. Trauger, who was appointed to the bench by President Bill Clinton, appears to agree with the second point, going so far as to say “Kalshi takes pains to distinguish itself from traditional sports betting.”
“Unlike traditional sportsbooks, Kalshi operates an exchange on which gamblers bet against each other, rather than the house,” she wrote in her decision. “Thus, Kalshi does not set the odds (they are determined by the market), is not a party to the bets (the two people on either end of the bet are), and has no interest in who wins (Kalshi makes money by charging fees for each trade).”
Trauger did, however, acknowledge there are similarities between Kalshi’s event contracts and sports bets and that it’s reasonable customers would spot those similarities.
Kalshi Likely to Succeed on Case Merits
Kalshi, which is taking steps to broaden its reach beyond sports, likely would have succeeded in its case against Tennessee because of federal preemption and because sports event contracts are swaps, according to Trauger.
The judge also pointed to the always important legal word “potential,” noting that when the CEA was passed, Congress used that word around the need for swaps to have economic impact. Thus, sports event contracts don’t need to definite economic consequence, the derivatives only need to potentially have economic impact.
“Second, the statute uses the term potential financial, economic, or commercial consequence,” observed Trauger. “Congress could have imposed a more stringent requirement. Or it could have omitted a qualifier altogether. Congress chose to use ‘potential,” which is broad.”
While the Tennessee case is a win for Kalshi, it’s not a guarantee other judges will follow suit and it doesn’t change states’ winning records against prediction markets. It also probably doesn’t diminish the likelihood of the Supreme Court having the final say in the matter.
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