Underdog's Tennessee suit runs into a circuit that already ruled

Underdog filed its seventh state lawsuit on Tuesday, this time asking a federal court in Tennessee to block the state's Sports Wagering Council from enforcing a cease-and-desist order issued on October 9. The order threatened civil penalties, a criminal referral, and revocation of Underdog's fantasy sports licence. The company's argument is the same one it has made in Connecticut, Massachusetts, New Mexico, Ohio, Washington, and Wisconsin: federal commodities law gives the CFTC exclusive jurisdiction over event contracts, and state gambling statutes cannot reach what the CFTC licenses.

The problem is that the Sixth Circuit — the court whose rulings bind Tennessee federal judges — already answered that argument in September, and answered it against Kalshi. The court found that sports event contracts likely do not qualify as swaps under federal commodities law, and then added a second holding that mattered more: even if they did qualify, federal preemption would not stop Tennessee or Ohio from enforcing their own statutes. That second holding is the one that cuts deepest, because it survives the swap definition fight entirely. Underdog can win the swap argument and still lose in this circuit.

The company acquired Aristotle Exchange earlier this year to move from fantasy sports into prediction markets. That transition has put it directly into the jurisdictional crossfire that Kalshi has been navigating since the circuit split opened. The Sixth Circuit went one way. The Third Circuit, ruling in a New Jersey case in September, went the other and sided with Kalshi. Illinois, earlier this month, sided with Kalshi too. The Supreme Court has been asked to review the Third Circuit ruling, with 39 state attorneys general and the NFL urging the justices to take the case.

The consensus read is that Underdog is buying time and building a record for eventual Supreme Court review. That is probably right. But I think the market is underpricing how much the Sixth Circuit's second holding complicates the preemption theory across all these cases. The swap definition question is genuinely contested — the circuit split is real and the arguments are serious. The preemption question is structurally harder, because it survives even a favourable answer on the first question. A Supreme Court that takes the Third Circuit case will have to address both holdings, and the preemption holding is where the states have the stronger ground. Several platforms are priced as if winning the swap argument resolves the litigation. It does not resolve it in the Sixth Circuit, and may not resolve it nationally.