Underdog has sued the state of Tennessee in federal court, seeking to block officials from enforcing gambling law against its sports event-contract exchange. The filing is the company’s seventh such lawsuit against a US state this year and lands weeks after an appeals court ruling went against a rival operator on the same legal question.
What happened
Underdog Exchange DCM Inc. and UDM LLC, which does business as Underdog Predict, filed the complaint Tuesday in the U.S. District Court for the Middle District of Tennessee in Nashville.
The defendants include Attorney General Jonathan Skrmetti, council Executive Director Mary Beth Thomas, Director of Fantasy Sports Nathan S. Shaver and council Chairman William Orgel, along with the council’s other members, all sued in their official capacities.
The Underdog Tennessee lawsuit follows an enforcement notice from the state.
The letter said Underdog’s sports event contracts “are ‘wagers’ under the Tennessee Sports Gaming Act,” and that sports wagering may be offered in the state only under a council license.
Regulators threatened penalties, referral to law enforcement, and possible revocation of a separate affiliate’s fantasy sports license.
The council warned it would pursue fines of $10,000 to $25,000 per offense for unlawfully accepting wagers.
Underdog’s defence rests on federal pre-emption.
The company argues that as a Designated Contract Market regulated by the Commodity Futures Trading Commission, it has rights to offer event contracts nationally and is not beholden to state gaming regulations.
The filing seeks a declaratory judgment and permanent injunction from the court.
Underdog began offering event contracts in Tennessee on August 28, following its March acquisition of Aristotle Exchange and its associated clearing organization.
The company is also in the process of being acquired by IG Group.
Why it matters
The case tests whether federally registered exchanges can override state gambling licensing regimes, a question with direct consequences for how sports-adjacent products reach consumers.
Underdog has sued seven states that have tried to ban the company from offering sports-event contracts: Washington, Connecticut, Massachusetts, New Mexico, Ohio, Wisconsin, and Tennessee.
A win in any one jurisdiction could reshape the competitive balance between regulated sportsbooks, which pay for state licences and taxes, and exchanges operating under federal commodities rules.
The dispute also threatens collateral damage to Underdog’s existing licensed business.
The warning introduces an additional complication for Underdog, which operates both fantasy sports contests and prediction markets through separate businesses, as Underdog Sports holds a Tennessee fantasy sports license while the lawsuit was brought by its exchange affiliate.
That overlap gives Tennessee leverage beyond the event-contract question itself, since regulators could tie enforcement to a licence the company already relies on commercially.
The bigger picture
Underdog’s position is weaker than it might have been a few months ago.
Tennessee officials appealed a related case, and the Sixth Circuit considered it alongside Kalshi’s appeal from Ohio, ultimately affirming the Ohio court’s denial of an injunction and vacating the Tennessee injunction.
The judges concluded that Kalshi had not demonstrated its sports event contracts qualified as swaps under the Commodity Exchange Act, and found that even if the contracts did qualify, federal commodities law would not prevent Tennessee or Ohio from enforcing their gambling regulations.
That precedent is binding on federal courts in Tennessee, making Underdog’s path to an injunction considerably harder.
The timing adds another layer of uncertainty.
The complaint points to last week’s CFTC proposed rule, which would include event contracts based on sports, politics, culture, and weather in the definition of a swap, alongside an interim final rule excluding specified casino-style gambling products from that definition.
Federal regulators appear to be actively redrawing the boundary that this litigation turns on, which could moot or reshape the dispute before a judge rules. For operators and affiliates watching the prediction-markets sector, the outcome will help determine whether event-contract platforms become a durable, lower-friction alternative to licensed sportsbooks or remain confined by state-by-state enforcement.
For more on how regulators are drawing lines around new betting-adjacent products, visit our industry news section.
Sources
- CasinoBeats – Underdog seeks injunction over Tennessee event-contract exchange
- DeFi Rate – Underdog Sues Tennessee Over Sports Prediction Contracts
- SBC Americas – Underdog sues Tennessee over sports prediction markets ban
- CDC Gaming – Inside the latest prediction market news
- Casino.org – Underdog Suing Tennessee Over State’s Effort to Enforce Gaming Regulations
- Sports Betting Dime – Underdog Sues Tennessee After Cease-and-Desist Notice
- RG.org – Underdog Sues Tennessee to Block Prediction Market Crackdown
- Sports Book Review – Underdog Sues Tennessee as State Threatens Fantasy Sports License
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