Underdog Sues Tennessee Seeking Declaratory Judgment and Injunction on CFTC-Regulated Event Contracts

Underdog has sued Tennessee in federal court after the state issued a cease-and-desist letter over the company’s event-contract exchange. The complaint filed in the U.S. District Court for the Middle District of Tennessee, Nashville Division, seeks a declaratory judgment that the state’s wagering laws are preempted as applied to the platform together with a permanent injunction blocking enforcement. As reported by CasinoBeats, the action names Tennessee Attorney General Jonathan Skrmetti and the Tennessee Sports Wagering Council as defendants.

The council’s cease-and-desist letter asserted that Underdog’s sports event contracts qualify as wagers under the Tennessee Sports Gaming Act requiring a council license. Underdog operates a Designated Contract Market regulated by the Commodity Futures Trading Commission and maintains that the Commodity Exchange Act grants the CFTC exclusive jurisdiction. It further argues that the Supremacy Clause prevents application of state wagering laws to its exchange. Tennessee’s system requires an operator license with nine operators currently holding such licenses. Underdog’s affiliate holds a separate fantasy-sports license that the filing treats as distinct from the event contracts.

The company is being acquired by IG Group. This suit is the seventh state action Underdog has filed to protect its prediction-market business with prior cases in Massachusetts, New Mexico, Ohio, Washington, Wisconsin and Connecticut.

Adverse Sixth Circuit Precedent Constrains the Claims

A decision by the U.S. Court of Appeals for the Sixth Circuit in consolidated cases involving Ohio and Tennessee rejected parallel arguments advanced by Kalshi. The court held that the contracts had not been shown to constitute swaps within the CFTC’s exclusive jurisdiction and that even if they were the Commodity Exchange Act does not bar states from applying their gambling laws. The ruling overturned an earlier decision by U.S. District Judge Aleta Trauger and binds federal courts in Tennessee. By contrast the Third Circuit sided with Kalshi in New Jersey while the Ninth Circuit recognized federal preemption for event contracts on federally regulated markets but upheld denial of a preliminary injunction in Nevada.

Open Questions Pending at the Supreme Court

Three petitions are now before the U.S. Supreme Court including New Jersey’s appeal in the Kalshi matter and Robinhood’s petition concerning Nevada. Underdog has described the Tennessee filing as potentially its final opportunity to obtain injunctive relief before state enforcement measures begin. The conflicting circuit decisions leave the boundary between CFTC oversight and state wagering authority unresolved pending higher-court review. Operators offering or evaluating similar federally regulated products must therefore price in the risk of fragmented enforcement across jurisdictions until the Supreme Court provides clearer direction.

Reporting: Casino Beats

Generated by SCCG’s automated editorial system from published source reporting. SCCG Management holds editorial responsibility.