Underdog Files Federal Suit Against Tennessee Over Prediction Market Authority After Sixth Circuit Kalshi Decision
Underdog sued Tennessee in federal court, arguing CFTC authority preempts state gambling laws on prediction markets and citing irreparable harm from enforcement. This follows the Sixth Circuit ruling against Kalshi allowing state action. The dispute centers on swap definitions and federal preemption.
SCCG Take — The filing sharpens the federal-state divide, forcing operators to prepare for prolonged uncertainty until courts or the CFTC deliver binding clarity on event contract oversight.
Underdog has filed a federal lawsuit challenging Tennessee’s application of state gambling laws to prediction markets. The company argues that federal authority takes precedence and that enforcement poses an immediate threat to its operations.
The complaint was filed in the U.S. District Court for the Middle District of Tennessee in Nashville. It names Attorney General Jonathan Skrmetti and members of the Tennessee Sports Wagering Council as defendants. As reported by Focus Gaming News, Underdog states that the threat of enforcement “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.”
Sixth Circuit Ruling Frames the Dispute
The suit follows a late-September decision by the U.S. Court of Appeals for the Sixth Circuit. In that case, Circuit Judge Julia Smith Gibbons held that Kalshi had not shown its sports contracts met the Commodity Exchange Act’s definition of a swap. The court added that even if the contracts qualified as swaps, the CEA would not prevent Tennessee or Ohio from enforcing their gambling laws.
The Commodity Futures Trading Commission (CFTC) issued an interim final rule October 9 that excludes traditional gambling products from the federal definition of a swap. The agency has also submitted two rules to the White House Office of Management and Budget to clarify oversight of prediction markets and real-world event contracts. Several states have urged the Supreme Court to intervene.
The Preemption Conflict and Its Next Phase
At the center remains the classification of event contracts as either CFTC-regulated financial products or state-regulated gambling. The Sixth Circuit decision limits one avenue for federal preemption arguments. Underdog now tests whether a separate complaint can secure different relief in district court.
The overlapping federal and state moves create immediate compliance pressure. Operators must track both the district court proceedings and any Supreme Court action. Resolution will determine the feasible paths for scaling prediction market activity under consistent rules rather than fragmented enforcement.
Reporting: Focus Gaming News
Generated by SCCG’s automated editorial system from published source reporting. SCCG Management holds editorial responsibility.
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