Tennessee'sSports Wagering Council sent formal cease-and-desist letters last week toKalshi, Polymarket, and Crypto.com, accusing the platforms of runningunlicensed sports wagering operations disguised as event contracts.The ordersrequire the companies to stop offering sports-related contracts to stateresidents, void all pending contracts, and issue full refunds by January 31.Tennessee Orders Kalshi,Polymarket, Crypto.com to Stop Sports BettingExecutiveDirector Mary Beth Thomas wrote in the letters that the platforms' sports eventcontracts fail to meet state consumer protection requirements and pose "animmediate and significant threat to the public interest of Tennessee". All threecompanies operate as designated contract markets registered with the CommodityFutures Trading Commission (CFTC), but Tennessee regulators say federalregistration doesn't exempt them from state gambling licensing requirements.Under thestate's Sports Gaming Act, any entity accepting wagers on sporting events musthold a Tennessee-issued license. None of the three platforms has obtained one. The councilwarned that continued operations could trigger civil penalties starting at$10,000 for a first violation and climbing to $25,000 for subsequent offenses.The state also threatened criminal referrals for aggravated gambling promotion,which carries felony charges under Tennessee law.Prediction Markets FaceGrowing State ResistanceTennesseejoins at least 10 other states that have taken action against prediction marketplatforms over the past year. Nevada, Arizona, Illinois, Maryland, New Jersey,Montana, and Ohio previously sent cease-and-desist orders to Kalshi. A federalcourt in Nevada ruled in November that sports event contracts qualify as gambling, stripping awaythe platforms' argument that CFTC registration provides federal protection fromstate enforcement.Connecticutissued similar orders in December to Robinhood, Kalshi, and Crypto.com, becoming the tenth state tochallenge the platforms. Wisconsin'sHo-Chunk Nation also sued Kalshi and Robinhood in August, claiming the platforms violatedfederal gaming laws and tribal sovereignty.TheTennessee order appears to be the first state-level enforcement actionspecifically targeting Polymarket. The platform re-entered the U.S. market lastyear after acquiring derivatives exchange QCX for $112 million and currentlyoffers only sports-related contracts to American users.Federal vs State AuthorityBattle IntensifiesTheplatforms maintain that CFTC oversight as designated contract markets allowsthem to operate nationwide regardless of state gambling restrictions. Kalshihas filed federal lawsuits challenging cease-and-desist orders, arguing stateslack authority over federally regulated derivatives exchanges. Crypto.comtook Nevada to court in June over similar restrictions, claiming the state improperly blockedits federally regulated contracts.Stateofficials counter that prediction markets drain tax revenue from licensedsportsbooks while bypassing consumer protections like age verification,responsible gaming protocols, and anti-money laundering measures. Tennesseecurrently licenses 12 sports betting operators and collected taxes on over $305million in July 2025 wagers alone. Thomas has said unlicensed offshore andunregulated platforms account for roughly 30% of missing state tax revenue.What Happens Next?Tennessee'sdeadline gives the platforms three weeks to comply or face escalating financialpenalties and potential criminal prosecution. Legal experts expect Kalshi tofile a federal lawsuit challenging the order, following the company's patternin other states. The CFTCrecently advised its registered exchanges and clearing organizations to accountfor state regulatory actions with appropriate contingency planning and riskmanagement procedures.This article was written by Damian Chmiel at www.financemagnates.com.