Underdog challenges Tennessee order to halt sports event contracts

Underdog has sued Tennessee Attorney General Jonathan Skrmetti and the Tennessee Sports Wagering Council after the state ordered the company to stop offering sports event contracts there, opening its seventh state-level court challenge since the start of September.

The complaint, filed Oct. 13 in the U.S. District Court for the Middle District of Tennessee’s Nashville Division, seeks a permanent injunction against enforcement of Tennessee gambling laws against Underdog’s prediction-market services. It also asks the court to declare the challenged state provisions unconstitutional as applied, on the grounds that they violate the Supremacy Clause.

The Council’s Oct. 9 cease-and-desist letter said the contracts were wagers under the Tennessee Sports Gaming Act and amounted to unlicensed sports betting. It demanded that Underdog halt the offerings immediately, warning of fines, civil penalties, potential criminal investigations and the possible loss of a fantasy-sports operator licence.

Underdog argues that its event contracts are lawful derivatives on federally regulated markets, and that the Commodity Futures Trading Commission has exclusive jurisdiction over trading on designated contract markets. The company says it followed CFTC approval procedures and operates a CFTC-designated contract market as well as a registered futures commission merchant.

The dispute turns on Tennessee’s requirement that interactive sports wagering be offered only under a licence issued by the Sports Wagering Council, the state body responsible for supervising and enforcing sports-wagering rules. In a 2025 letter to the CFTC, the Council said sports event contracts offered by federally regulated firms were wagers under Tennessee law, and asked the federal agency not to permit them while it reviewed the products.

Underdog began offering event contracts in Tennessee on Aug. 28, following its March acquisition of Aristotle Exchange and its associated clearing organisation. Its Tennessee suit follows September cases against Massachusetts, New Mexico, Ohio, Washington, Wisconsin and Connecticut over comparable state restrictions.

The litigation arrives after a setback for Kalshi in the same federal appellate circuit. On Sept. 25, the Sixth Circuit rejected Kalshi’s argument that federal commodities law pre-empted gambling enforcement in Tennessee and Ohio, concluding that the company had not shown its sports contracts qualified as federally regulated swaps. The decision concerned sports-event contracts and did not necessarily extend to markets involving politics, economics, weather or entertainment.

The federal position remains in flux. The CFTC proposed on Oct. 9 to clarify that sports-related event contracts fall within the federal definition of swaps, which would place them under the agency’s regulatory authority.

Underdog’s earlier legal strategy also coincided with a retreat from daily fantasy sports in seven states. The company surrendered licences in Massachusetts, Maryland, Michigan, Mississippi, New Jersey, Pennsylvania and Ohio after saying state regulators would not allow it to offer both fantasy contests and its CFTC-licensed prediction-market products in those jurisdictions.