Underdog sues Tennessee over prediction market ban

Underdog files seventh state lawsuit to halt Tennessee prediction market ban

A cease-and-desist letter arrived at Underdog's offices on October 9th. Tennessee's Sports Wagering Council directed the company to stop offering sports event contracts immediately, threatening civil penalties, criminal referrals, and revocation of its fantasy sports licence. Underdog's response, filed in federal court days later, was to sue.

The lawsuit makes the argument that has become familiar across a dozen courthouses: that prediction market contracts fall under exclusive CFTC jurisdiction, that the Supremacy Clause bars state enforcement, and that Tennessee's regulators are therefore acting outside their authority. Tennessee is now the seventh state Underdog has sued over precisely this question, following Connecticut, Massachusetts, New Mexico, Ohio, Washington, and Wisconsin.

The immediate legal environment makes this a difficult case to bring. The Sixth Circuit — the court whose precedent governs federal proceedings in Tennessee — ruled against Kalshi in September, finding that sports event contracts likely fall outside the definition of swaps under federal commodities law. It added a second holding that is harder to argue around: even if the contracts were swaps, the court found that federal preemption would not stop Tennessee or Ohio from applying their own statutes. That two-part structure is what makes the Sixth Circuit's opinion more durable than a single jurisdictional ruling, and Underdog is operating directly inside that circuit.

The circuit split is real, and that is where Underdog's strategic logic sits. A federal judge in Illinois sided with Kalshi this month, finding the contracts likely qualify as swaps and blocking enforcement. The Third Circuit reached the same result in a New Jersey case in September. With the Ninth Circuit aligned with state regulators, and the Sixth Circuit now also aligned with states, the Supreme Court petition that a coalition of 39 state attorneys general and the NFL have filed begins to look less like a long shot and more like an institutional necessity. The circuits cannot hold four incompatible answers simultaneously.

Underdog entered this space through the acquisition of Aristotle Exchange and is structurally committed to the federal preemption theory in a way a pure fantasy sports operator would not be. Walking back from these lawsuits is not available as a strategy once the product is live across multiple states.

Here is where my read diverges from the consensus framing. Most coverage treats this as Underdog copying Kalshi's playbook on unfavourable terrain. I think that gets the mechanism slightly wrong. Underdog is not trying to win in Tennessee district court. It is trying to generate a second well-developed circuit conflict — one that originates in the Sixth Circuit, where the adverse precedent already exists — so that the Supreme Court has a cleaner record to review. A loss at the district level that produces a thorough written opinion on the swap definition question is more valuable to the industry's Supreme Court petition than a quiet settlement. Underdog's seven simultaneous lawsuits are not desperation. They are docket management at a national scale.

The clearinghouse for this entire legal architecture is whichever Supreme Court term takes the case. Prediction markets exist on active contracts on the resolution of that petition. The Sixth Circuit's dual-holding structure — jurisdiction and preemption argued in the alternative — means the Court cannot resolve this dispute with a narrow ruling on swap definitions alone. It will have to address preemption. That is a broader and more consequential question than most of the current litigation framing suggests, and the answer will reach well beyond sports event contracts.