At the heart of the regulatory debate is a question that seems simple at first glance: when someone puts money on whether the Tennessee Titans will win a football game, does it matter whether the platform calls that transaction a 'bet' or an 'event contract'?
Tennessee believes it does.
In January, the state's Sports Wagering Council took action against companies Kalshi, Polymarket, and Crypto.com, ordering these platforms to stop offering Tennessee residents prediction markets related to sports. Regulators argued that such contracts are essentially sports bets and therefore cannot be offered without complying with Tennessee's requirements for licensing, taxation, age restrictions, and consumer protection.
Prediction market operators see this quite differently. Their argument is that event contracts are financial instruments regulated at the federal level and overseen by the Commodity Futures Trading Commission (CFTC). If this interpretation prevails, states might have no authority to regulate them as gambling products at all.
This distinction may seem purely technical, but it could determine billions of dollars and the future development of the sports betting industry in the US.
This dispute has also exposed an increasingly uncomfortable reality: as prediction markets actively expand their activities into sports, many of their products are becoming practically indistinguishable for the average user from what they can already find on DraftKings, FanDuel, or BetMGM.
The question now before the courts is: is the fact that they are built as an exchange enough to consider them legally distinct?
On January 9th, the Tennessee Sports Wagering Council sent cease-and-desist letters concerning sports event contracts offered by Kalshi, Polymarket, and Crypto.com.
The state demanded that the platforms stop offering these products to customers in Tennessee, void active contracts, and return client funds.
Tennessee's position is clear. According to the state's Sports Wagering Act, companies accepting bets on sporting events must have a state license and comply with a regulatory framework that includes consumer protections, minimum age requirements, responsible gaming measures, and taxation.
Kalshi meets none of these requirements as a Tennessee bookmaker, as it insists it is not a bookmaker.
Instead, Kalshi operates a federally recognized market for contracts. Users buy and sell contracts that settle based on whether an event occurs. A contract that asks whether an NFL team will win a specific game might trade for 65 cents, roughly corresponding to a market probability of 65%. If the event occurs, the winning contract settles at $1. If not—at zero value.
From an economic standpoint, for the customer, this process may look surprisingly similar to gambling.
However, the market structure is different.
A traditional bookmaker accepts a bet opposite to the client's and sets odds calculated to manage its own risk. On the Kalshi platform, users typically trade with each other. The exchange facilitates the transactions, and prices are formed based on the interaction of buyers and sellers, not set by a bookmaker determining odds.
It is precisely this distinction that underpins Kalshi's legal defense.
It may be this distinction that ultimately determines whether America will form a unified national system for prediction markets or dozens of separate gambling systems in each state.
