Underdog sued Tennessee sports betting regulators Tuesday to block enforcement of the state’s gambling laws against its prediction market business.
The lawsuit comes weeks after a federal appeals court rejected similar arguments from Kalshi in a case against the Tennessee Sports Wagering Council. The TN sports betting regulator sent Underdog a cease-and-desist order on Oct. 9 directing it to stop offering sports event contracts. The letter threatens potential civil penalties, criminal investigations and revocation of Underdog’s fantasy sports license.
Underdog argues that its exchange falls under the exclusive federal jurisdiction of the Commodity Futures Trading Commission, thus preventing states from applying their gambling laws. The company alleges that Tennessee’s actions violate the Constitution’s Supremacy Clause.
The argument echoes those made by prediction market operators in dozens of lawsuits across the country, as states seek to stop what they say is unlicensed sports betting.
Sixth Circuit rules in favor of TN
The Sixth Circuit Court of Appeals overturned an injunction protecting Kalshi from Tennessee regulators in September. It found that sports event contracts likely do not qualify as “swaps” under federal commodities law, a central question in the nationwide legal battle.
The court also ruled that even if the contracts qualified as swaps, federal law would not prevent Tennessee or Ohio from enforcing their laws. The decision, which upheld a lower court ruling against Kalshi in Ohio, sets binding precedent for federal courts in Tennessee.
Federal appeals courts remain divided on the issue. Earlier this month, a federal judge in Illinois sided with Kalshi, finding that its sports event contracts likely qualify as swaps under federal law and blocked the state from enforcing its sports betting licensing requirements.
The Third Circuit also sided with Kalshi in a seperate New Jersey case in September. The Ninth Circuit, meanwhile, had ruled in favor of Nevada regulators and California tribes in similar disputes against the company.
Underdog now suing 7 states
Tennessee is the seventh state Underdog has sued over the issue, joining Connecticut, Massachusetts, New Mexico, Ohio, Washington, and Wisconsin.
The litigation follows Underdog’s acquisition of Aristotle Exchange earlier this year as it transitions from fantasy sports and sports betting into the prediction markets business.
The broader dispute could reach the U.S. Supreme Court, which has been asked to review the Third Circuit ruling in New Jersey. A bipartisan coalition of 39 state attorneys general and the NFL have also urged the justices to take the case.
