Underdog has filed suit in federal court against Tennessee, seeking to block enforcement of the state's wagering laws against its event-contract exchange platform. The case represents the latest flashpoint in a broader legal battle over whether federally regulated prediction markets fall outside state gambling jurisdiction.

The Core Dispute

After Tennessee issued a cease-and-desist letter, Underdog filed in U.S. District Court for the Middle District of Tennessee. The state claims Underdog's sports event contracts constitute wagers under Tennessee's Sports Gaming Act and says offering such products requires a license from the Tennessee Sports Wagering Council.

Underdog's counter-argument is straightforward. The company operates a Designated Contract Market regulated by the Commodity Futures Trading Commission and argues that the Commodity Exchange Act grants exclusive federal jurisdiction over such platforms. From Underdog's perspective, this framework puts the exchange beyond Tennessee's reach.

A Difficult Legal Landscape

Underdog faces serious headwinds. A September decision from the U.S. Court of Appeals for the Sixth Circuit, binding on Tennessee courts, rejected similar arguments from prediction-market competitor Kalshi. The appellate court found that Kalshi hadn't demonstrated its sports contracts qualified as swaps under federal law. Even if they did, the court said, states retain authority to apply gambling regulations.

The legal picture is genuinely fractured across the country. The Third Circuit sided with Kalshi in New Jersey, while the Ninth Circuit found federal preemption in Nevada but still denied the company's bid for an injunction. That inconsistency has left the broader question unsettled and invited Supreme Court attention. Three related petitions are currently pending.

Underdog's Broader Campaign

Tennessee marks the seventh state where Underdog has pursued litigation to protect its prediction-market operations. Massachusetts, New Mexico, Ohio, Washington, Wisconsin and Connecticut have all faced similar challenges from the platform.

There's another wrinkle. The company is in the midst of acquisition by IG Group, which adds another layer to the proceedings. Underdog is seeking both a declaratory judgment that Tennessee's wagering laws don't apply to its exchange and a permanent injunction preventing state enforcement.

Defendants in the case include Tennessee Attorney General Jonathan Skrmetti and the Tennessee Sports Wagering Council. Underdog notes that nine operators currently hold state sports-wagering licenses. The company argues this framework doesn't accommodate federally regulated event contracts on the same footing.

What's At Stake

This dispute comes down to a question without a clean answer: whether innovation in federal financial regulation can create genuine space for new forms of trading activity, or whether states retain core authority over anything that looks and feels like a wager. Underdog plainly believes this case may be its last realistic opportunity for an injunction before Tennessee acts. What the courts decide could reshape how prediction markets operate across America.