Underdog files lawsuit against Tennessee regulators over prediction market operations

Underdog Fantasy has filed a lawsuit against Tennessee Attorney General Jonathan Skrmetti and members of the Tennessee Sports Wagering Council for attempting to prohibit the operation of its prediction markets platform. 

Previously, the Sports Wagering Council had issued a cease-and-desist order to Underdog following a decision handed down by the US Court of Appeals for the Sixth Circuit on September 28. 

The court ruled against Kalshi in its disputes with gambling regulators in Ohio and Tennessee, finding the prediction market operator had not established that its sports event contracts fall exclusively under federal regulation.

Kalshi argued that its contracts are swaps traded on a designated contract market regulated by the Commodity Futures Trading Commission (CFTC), only for the Sixth Circuit to reject that argument at the preliminary injunction stage.

However, following the CFTC’s alteration for the definition of a “swap,” Kalshi filed a motion for rehearing in the Sixth Circuit based on the new terminology. 

On October 9, the CFTC published a Notice of Proposed Rulemaking that seeks to include event contracts based on sports, politics, cultural and weather-based events in the term "swaps."

Tennessee also marks the seventh state in which Underdog has filed a lawsuit against gambling regulators, joining Massachusetts, New Mexico, Washington, Wisconsin, Connecticut and Ohio.

“The threat of Defendants’ attempted enforcement of Tennessee law poses a direct and imminent threat to Underdog’s business and its users, and leaves Underdog with a ‘Hobson’s choice’ wherein both its options will cause irreparable harm,” the October 16 filing said.

Along with Underdog, Tennessee regulators have also previously issued cease-and-desist orders to Kalshi, Polymarket and Crypto.com.

Underdog asked the court to grant a permanent injunction against state regulators to continue offering its sports-event contracts, as well as for a declaratory judgment stating that Tennessee violated the Supremacy Clause of the US Constitution by enforcing its gaming laws.