Underdog sues Tennessee officials over prediction market enforcement

Underdog Exchange DCM and UDM, which operates as Underdog Predict, filed a lawsuit on 13 October in the US District Court for the Middle District of Tennessee in Nashville seeking to stop state enforcement of gambling rules against its sports event contracts. The defendants include Attorney General Jonathan Skrmetti and the leadership of the Tennessee Sports Wagering Council. The filing follows a 9 October demand from the Council that the company stop offering the contracts in the state.

According to the complaint, Tennessee's position is that the products constitute bets and require a licence issued by the Council. The complaint states that the 9 October demand raises the prospect of sanctions and possible investigations, as well as the risk of revocation of the fantasy sports licence held by Underdog Sports, an affiliate described as separate from the plaintiffs. Underdog argues that these threats expose its business and its relationships with users to harm that a later award of damages would not repair.

Underdog has asked the court for a declaratory ruling that the contested state rules do not apply and for a permanent injunction barring their enforcement against its activities on markets regulated at federal level. The plaintiffs argue that the Commodity Exchange Act gives the Commodity Futures Trading Commission exclusive authority over such contracts, so Tennessee's intervention would breach the constitutional clause establishing the supremacy of federal law.

The new case follows a 25 September ruling by the Sixth Circuit in Kalshi's disputes with Ohio and Tennessee. Examining requests for interim protection, the appeals court found that the operator had not shown a likelihood of success on the argument that federal law bars application of state gambling rules. The court upheld the denial of a preliminary injunction in Ohio, set aside the one granted in Tennessee and remanded the proceedings for further steps. That ruling concerns Kalshi and the interim stage and is not a decision on Underdog's new complaint.

Underdog has already brought other actions against state restrictions on prediction markets, including a complaint against Connecticut in which the company asserted federal authority over sports event contracts. The Tennessee case again raises the central question in these proceedings: whether federal supervision of derivatives markets excludes, for the contested products, the application of state betting rules.