Underdog Tennessee lawsuit: Platform Seeks Injunction Over Event-Contract Exchange

Underdog Tennessee lawsuit began after the Tennessee Sports Wagering Council sent a cease-and-desist letter on 12 September 2026. The letter declared the company’s sports event contracts to be wagers under the Tennessee Sports Gaming Act and demanded that the platform stop offering them to Tennessee customers. Underdog counters that the contracts fall under a Designated Contract Market (DCM) regulated by the Commodity Futures Trading Commission (CFTC) and that the Commodity Exchange Act (CEA) gives the federal regulator exclusive jurisdiction.

Underdog Tennessee lawsuit argues that its exchange operates as a DCM, a market type the CFTC oversees. Under the CEA, trading on such markets is federally regulated, and states cannot impose gambling laws on them. The company seeks a declaratory judgment that Tennessee’s wagering laws are pre-empted and a permanent injunction to block enforcement.

The council’s letter stated that the event contracts qualify as wagers and that sports wagering in the state requires a council licence. It warned of penalties and other enforcement measures if the company continued to offer the contracts to Tennessee customers. The letter also noted that only nine operators hold the required licences.

A September decision by the Sixth Circuit in consolidated Ohio and Tennessee cases rejected the argument that Kalshi’s sports-related contracts were swaps under the CFTC’s exclusive jurisdiction. The court held that even if the contracts were swaps, the CEA does not bar states from applying gambling laws. That ruling is binding on federal courts in Tennessee and undermines Underdog’s pre-emption claim.

Tennessee is the seventh state Underdog has sued to protect its prediction-market business. Other states include Massachusetts, New Mexico, Ohio, Washington, Wisconsin and Connecticut. Related disputes have reached the U.S. Supreme Court, with petitions pending from New Jersey and Nevada.

If Tennessee’s laws are upheld, Underdog would have to pull its event contracts from the state, reducing liquidity for bettors who rely on the platform’s market depth. Operators licensed under the state act would retain a competitive edge. Conversely, a federal ruling in Underdog’s favor could open the door for other DCMs to operate without state licences, eroding local regulatory control.

The case highlights the tension between federal commodity regulation and state gambling oversight. A federal victory could signal that DCMs can sidestep state licensing, potentially expanding the market but also reducing consumer protections. A state win would reinforce the authority of state gaming commissions over sports-related contracts.

The Nashville court’s decision will set a precedent for other states with similar enforcement letters. Monitoring the Sixth Circuit’s handling of the case and any appeals to the Supreme Court will be critical for operators and bettors alike.