Kalshi has finally scored a legal win on Thursday, February 19, 2026, after a long string of court setbacks.
A federal judge in Tennessee made it clear: the company’s sports event contracts qualify as swaps under the Commodities Exchange Act (CEA), allowing the prediction market operator to continue offering them.
“Kalshi Has No Interest in Who Wins”
Judge Aleta Trauger of the US District Court for the Middle District of Tennessee sided with Kalshi in a case focused solely on its sports derivatives.
Judge Trauger referenced the Dodd-Frank Act of 2010, noting how it influences the CEA and the way the Commodities Futures Trading Commission (CFTC) regulates prediction markets, including 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,’” Trauger wrote, quoting the statute.
The judge granted Kalshi a preliminary injunction, five weeks after issuing a temporary restraining order against state gaming regulators that prohibited enforcement of Tennessee’s gaming laws against the company.
At the heart of the debate is whether Kalshi’s sports event contracts are equivalent to traditional sports betting, an idea that state regulators, especially in jurisdictions where sports wagering is legal, support.
Kalshi and other prediction market operators disagree, emphasizing that their products are federally regulated and not traditional sports bets, a view also preferred by Judge Trauger.
“Unlike traditional sportsbooks, Kalshi operates an exchange on which gamblers bet against each other, rather than the house,” she wrote.
“Thus, Kalshi does not set the odds, is not a party to the bets, and has no interest in who wins. Kalshi makes money by charging fees for each trade.”
She did acknowledge that consumers might notice similarities between sports bets and Kalshi’s contracts, but said the distinctions are clear.
Congress Used “‘Potential’, Which Is Broad”
Trauger also noted that Kalshi is likely to succeed on the merits of its case because sports event contracts meet the federal definition of swaps.
The judge highlighted that Congress intended these contracts to require only “potential” economic impact, not guaranteed financial consequence.
“Congress could have imposed a more stringent requirement. Or it could have omitted a qualifier altogether. Congress chose to use ‘potential,’ which is broad,” she observed.
While this is a clear win for Kalshi, it doesn’t guarantee that other courts will reach the same conclusion.
States’ ongoing challenges against prediction markets remain intact, and the Supreme Court may ultimately have the final word. For now, though, one thing is for certain:
Kalshi can continue offering its sports event contracts in Tennessee. As for Nevada, the state’s Gaming Control Board recently filed a suit to stop the company from offering its professional and collegiate sports-related contracts.
