Tennessee targets prediction markets in new crackdown

• Tennessee has become the latest state to go after prediction markets
• The Volunteer State's AG has already signed an amicus brief in support of Maryland's own efforts to turf out the sector
• This is the first known instance of Polymarket being targeted with a cease-and-desist letter after returning to the US

Tennessee has become the latest state to go after prediction markets, as the vertical continues to gather momentum amid a mixed outlook about its potential, reach, and how much it impacts traditional sportsbooks.

Nevertheless, the Volunteer State has toughened its stance on what it sees as an illegal form of gambling and joins a long list of jurisdictions to have acted in kind. To this end, the Tennessee Sports Wagering Council has targeted Kalshi, Polymarket, and Crypto.com, ordering them to stop all activities in the state.

Tennessee has become the latest state to carry out a crackdown against prediction market platforms

The issue that the regulator takes has to do with the offering of sports event contracts, which the watchdog deems to be illegal under local state laws.

This argument has been the basis of a series of legal actions across the country, with gaming bodies arguing that prediction markets are skirting established laws, whereas prediction market platforms, such as Kalshi, have argued that their product is not regulated under the gaming commission’s statutes, and is different than sports betting.

This legal framework matters, as it would determine whether prediction markets can continue to expand into what appears to be the most lucrative vertical for them - sports.

"The sports events contracts offered on Polymarket's exchange are not compliant with these protections and are an immediate and significant threat to the public interest of Tennessee," SWC Executive Director Mary Beth Thomas said in the letter sent to Polymarket specifically.

Kalshi and Crypto.com received similar letters, but this is the first time it appears that Polymarke has been targeted in a similar action. While states have gone after prediction markets, these platforms still have the legal basis to fight back, and many have - suing states outright.

However, the Tennessee Sports Gaming Act could be applied in the case of the Volunteer State, according to the regulator, which insists that non-compliance can be punished with fines that range from $10,000 to $25,000. Another recourse the regulator has is to seek injunctive relief, trying to involve the courts and block the platforms’ operations statewide.

Yet, this is not all - perhaps most significantly, Tennessee may try to treat the operation of prediction markets as a criminal offense, as the letters have cited criminal gambling laws already, and specifically those related to the promotion of such products.

Prediction market platforms are willing to mount another fight

This is not exactly surprising. Tennessee’s AG, Jonathan Skrmetti, was one of the people to sign an amicus brief to support Maryland’s own battle against prediction markets. The brief was signed by 37 attorneys general, signaling that gaming regulators and prosecutors are working to limit prediction markets from operating the way they do presently.

However, prediction markets are not willing to budge and cave in when they believe the law is on their side. Kalshi has commented for The Block, one of the media outlets to do the original reporting, that the company has already filed a complaint with a federal court, arguing that Tennessee is trying to block its operations without the legal basis to do so.

Kalshi insisted that its offer has already been recognized as a regulated product that is free to operate under current statutes from the Commodities Futures Trading Commission. Despite these appellations, states, regulators, and AGs are unlikely to relent in the foreseeable future.

Image credit: ChatGPT