Underdog is suing the state of Tennessee, the attorney general, and members of the Tennessee Sports Wagering Council after receiving a cease-and-desist order.
- Tennessee issued Underdog a cease-and-desist order Oct. 9.
- Underdog filed a lawsuit against Tennessee on Tuesday in an attempt to continue operating in the state.
- Kalshi, one of Underdog’s competitors, was ultimately unsuccessful in Tennessee with a similar legal strategy.
Last week, Tennessee issued Underdog a cease-and-desist order, demanding that it halt its prediction market operations in the Volunteer State. It warned that it could pursue fines, civil penalties, and criminal investigations and revoke a fantasy sports operator license if the company does not comply.
In response, Underdog filed a lawsuit in the U.S. District Court for the Middle District of Tennessee Nashville Division on Tuesday.
Underdog is seeking to block Tennessee from shutting down its operations, arguing that as a prediction market, it is federally regulated by the Commodity Futures Trading Commission (CFTC) and therefore exempted from Tennessee’s gambling laws.
The lawsuit states, “By threatening to enforce the statutes referenced in (Paragraph) 103 or any other statutes, and any rules adopted thereunder, against Underdog, Defendants are violating the Supremacy Clause by intruding upon the CFTC’s exclusive jurisdiction to regulate derivatives transactions on federally designated contract markets.”
Given recent prediction market news, however, Underdog may have an uphill battle.
Kalshi's Tennessee ruling complicates case
In January, Tennessee issued cease-and-desist orders to prediction market operators including Kalshi, Polymarket and Crypto.com. Underdog was not a prediction market operator at that time.
In February, Kalshi received a preliminary injunction that prevented Tennessee from enforcing its gambling laws against the company. Tennessee appealed in May, and the Sixth Circuit Court of Appeals overturned the injunction in September. The court also ruled against Kalshi in a similar case in Ohio.
Tennessee was among several states that asked the CFTC not to allow prediction markets to offer sports event contracts. In its April letter to the CFTC, the Tennessee Sports Wagering Council wrote, “As the Commission reviews these sports events contracts, we ask that you respect the policy decisions made by the Tennessee Legislature and not permit the offering of sports events contracts.”
Earlier this month, the CFTC proposed a rule that would classify sports event contracts as swaps, putting them under its regulatory authority.
Underdog is also challenging Connecticut, where it filed a similar lawsuit last month after receiving a cease-and-desist order. Its competitor, Kalshi, was denied an injunction in Connecticut in August and is appealing that decision to the Second Circuit Court of Appeals.
