Underdog sued Tennessee officials Tuesday over an order to stop offering sports event contracts, challenging a crackdown that threatens both its prediction markets business and a fantasy sports license.
The lawsuit comes less than three weeks after the Sixth Circuit Court of Appeals rejected Kalshi’s attempt to shield its sports contracts from Tennessee and Ohio gambling laws. Underdog acknowledges that setback in its complaint but said it must preserve its appellate rights while competing interpretations of federal authority reach the U.S. Supreme Court.
Underdog argues that the Commodity Exchange Act gives the Commodity Futures Trading Commission exclusive authority over its federally regulated markets, preventing Tennessee from applying state gambling laws to its event contracts. It seeks a declaratory judgment and a permanent injunction against enforcement.
Tennessee puts Underdog fantasy sports license at risk
The Tennessee Sports Wagering Council sent Underdog a cease-and-desist letter earlier this month, citing the Sixth Circuit’s recent decision. The letter said Underdog’s sports event contracts “are ‘wagers’ under the Tennessee Sports Gaming Act,” and sports wagering requires a council-issued license.
The council called for an immediate halt to the contracts and warned of fines ranging from $10,000 to $25,000 per offense, as well as civil penalties and potential injunctive relief through the attorney general’s office. It also threatened to refer the matter to law enforcement for further investigation.
The council also warned that if Underdog continued to offer sports event contracts, its fantasy sports operator license would be “at risk of revocation.”
Underdog’s complaint argues that Underdog Sports is a separate affiliate of the company, and that its fantasy contests are distinct from the contracts offered through the exchange and brokerage businesses. Underdog also argues Tennessee is threatening to use its fantasy sports licensing authority to punish activity that only the federal government can regulate.
Kalshi’s Tennessee protection fell in combined appeals
Tennessee previously sent Kalshi a cease-and-desist letter in January 2026, demanding that it stop offering sports contracts, void pending contracts entered into by Tennessee customers and refund customer money. Kalshi sued and subsequently obtained a preliminary injunction blocking enforcement.
Tennessee officials appealed, and the Sixth Circuit considered that case alongside Kalshi’s appeal from Ohio, where a federal district court denied the exchange preliminary protection.
Last month, the Sixth Circuit affirmed the Ohio court’s denial of an injunction and vacated the Tennessee injunction. Its decision rejected Kalshi’s position on two grounds:
- The exchange had not shown that its sports event contracts qualified as swaps within the CFTC’s exclusive jurisdiction.
- Even if they did, the Commodity Exchange Act did not preempt the states’ gambling laws as applied to them.
Underdog seeks appealable order
Underdog’s complaint cites the Sixth Circuit decision and links the new lawsuit to the prospect of further appellate review.
“Until these issues are resolved by the Supreme Court, Underdog is entitled to preserve its appellate rights by asking for an order that it can appeal and to seek relief from meritless enforcement pending a Supreme Court order,” the complaint reads.
The complaint also 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. The CFTC also issued an interim final rule excluding specified casino-style gambling products from that definition.
Underdog cites those measures to distinguish contracts traded on organized exchanges at market-set prices from wagers accepted by a licensed gambling operator acting as the house.
The company further argues that withdrawing from Tennessee would conflict with federal obligations governing impartial market access and orderly trading. It cites CFTC interventions in Michigan and New York disputes involving Kalshi, where the agency opposed measures it said would disrupt open positions or exchange operations.
Seventh state challenge joins broader litigation
To date, Underdog has sued seven states, including:
- Connecticut
- Massachusetts
- New Mexico
- Ohio
- Washington
- Wisconsin
The cases share the central argument that federal derivatives regulation prevents states from treating the company’s sports event contracts as unlicensed sports wagering.
The Tennessee complaint also describes a parallel federal campaign. It lists CFTC lawsuits challenging state enforcement in:
- Arizona
- Connecticut
- Illinois
- Kentucky
- Minnesota
- New Mexico
- New York
- Wisconsin
Competing appellate rulings feed Supreme Court fight
A Supreme Court ruling is likely on its way, as multiple appellate courts split on the regulatory jurisdiction of sports event contracts.
The Third Circuit upheld Kalshi’s preliminary injunction in New Jersey, concluding that the sports event contracts were swaps and that federal law preempted state enforcement. New Jersey asked for the Supreme Court to weigh in.
Along with the Sixth Circuit’s ruling for the states, the Ninth Circuit recognized express federal preemption for covered event contracts but affirmed the denial of Kalshi’s Nevada injunction.
The NFL urged the justices to hear New Jersey’s case, joining a push for review supported by attorneys general from 39 states and the District of Columbia. The league raised concerns about federal oversight of sports integrity, while state officials are defending their authority over sports wagering. Robinhood and Crypto.com also asked for the Supreme Court’s opinion.
