Underdog files Tennessee suit despite binding Sixth Circuit ruling

The cease-and-desist arrived on October 9th. Underdog's lawsuit followed within days, filed against the Tennessee Sports Wagering Council to block enforcement of the state's gambling laws against its sports event contracts. The company argues federal jurisdiction, the Supremacy Clause, the familiar architecture of every prediction market case filed in the last two years.

The Sixth Circuit already answered this argument in September. It ruled against Kalshi in a case involving Tennessee and Ohio, finding that sports event contracts likely do not qualify as swaps under federal commodities law, and that even if they did, federal law would not pre-empt state enforcement. That ruling is binding precedent in Tennessee. Underdog filed anyway.

There are two plausible readings of this. One is that Underdog believes the circuit split — Illinois sided with Kalshi this month, the Third Circuit did the same in New Jersey — gives it enough daylight to argue the question is genuinely unsettled, that a lower court in Tennessee might hold until the Supreme Court speaks. The other is that the lawsuit is not designed to win in Tennessee. It is designed to run down the clock, maintain operations while the jurisdictional question travels upward, and keep the product in front of customers for as long as the calendar allows.

Having watched regulatory conflict move through institutional channels in a previous position, the second reading is almost always the correct one when a company files inside unfavorable precedent without explaining why the binding ruling is wrong.

Underdog's Tennessee action is now its seventh state lawsuit. The company entered prediction markets through its acquisition of Aristotle Exchange and is still building the business. Every week of uninterrupted operation matters more to it than to Kalshi, which is already established. That context makes the litigation posture legible: this is a company buying time, not arguing law.

The harder problem sits with the Sixth Circuit precedent itself. The circuit split is real. A federal judge in Illinois found the contracts likely qualify as swaps. The Ninth Circuit came down against Kalshi. The Third Circuit came down for it. The Supreme Court has been asked to take the New Jersey case. A bipartisan coalition of thirty-nine state attorneys general and the NFL have urged the justices to act. When the NFL and the state of Nevada are on the same side of a jurisdictional argument, the political weight behind the state position is not something prediction market operators can dismiss with another innovation talking point.

Mike Dreitzer put this plainly at an Indian Gaming Association webinar on Wednesday. He did not object to innovation. He objected to the word being used as a substitute for a license. His framing — that peer-to-peer structure, early cashout options, and price discovery are features that sportsbooks already offer and that do not change what the underlying transaction is — is a cleaner rebuttal to the CFTC's proposed swap expansion than anything the state attorneys general have filed. It is also, notably, the argument that the Sixth Circuit found persuasive.

The consensus read in prediction market coverage is that the Supreme Court petition is the pivotal moment and that everything happening in state courts is noise while the jurisdictional question works its way up. That read is probably wrong. What is happening in Tennessee, in Ohio, in Nevada, and at that IGA webinar is the accumulation of a political and regulatory record. When the Court does take this case — and the split makes it close to inevitable — the justices will be reading a docket that shows states enforcing their laws, regulators testifying that the products are functionally identical to sports betting, and operators filing suit inside binding adverse precedent. That record matters. Underdog's lawsuit this week contributed to it, and not in the direction the company intended.