Underdog Sues Tennessee Over Threat To Fantasy Sports Licence

Underdog has filed suit against Tennessee officials after the state ordered it to halt its sports event contracts, a demand that also put the company's fantasy sports licence in jeopardy, SBC Americas reported.

The lawsuit arrives less than three weeks after the Sixth Circuit Court of Appeals sided against Kalshi in a related dispute, rejecting the rival prediction markets operator's bid to keep its sports contracts outside the reach of Tennessee and Ohio gambling statutes.

Underdog's complaint acknowledges that setback but says it needs a court order it can appeal while rival interpretations of federal jurisdiction make their way toward the Supreme Court.

At the heart of Underdog's case is the claim that the Commodity Exchange Act gives the Commodity Futures Trading Commission sole authority over its federally regulated markets, leaving Tennessee without power to apply its own gambling law to the contracts. The company is asking the court for a declaratory judgment and a permanent injunction blocking enforcement.

The dispute began when the Tennessee Sports Wagering Council sent Underdog a cease-and-desist letter this month, pointing to the Sixth Circuit's decision and stating that Underdog's sports event contracts amount to wagers under the state's Sports Gaming Act, meaning they require a council-issued licence.

The council demanded an immediate stop to the contracts, warning of fines running from $10,000 to $25,000 per offence, further civil penalties, injunctive action through the state attorney general, and possible referral to law enforcement.

Separately, the council said Underdog's fantasy sports operator licence could face revocation if the contracts continued. Underdog's complaint counters that its fantasy contests are run through a distinct affiliate, Underdog Sports, and are legally separate from the exchange and brokerage products the state is targeting. The company argues Tennessee cannot use its fantasy sports licensing power to penalise conduct it says only federal regulators can oversee.

Tennessee's position traces back to a cease-and-desist letter it sent Kalshi in January 2026, which demanded Kalshi stop offering sports contracts, cancel pending Tennessee customer contracts and issue refunds. Kalshi sued and won a preliminary injunction, which Tennessee appealed. The Sixth Circuit reviewed that appeal together with Kalshi's challenge over Ohio, where a district court had already refused Kalshi preliminary protection.

Last month the Sixth Circuit upheld the Ohio denial and threw out the Tennessee injunction, ruling both that Kalshi had not shown its sports contracts qualified as swaps under the CFTC's exclusive jurisdiction and that, even if they did, the Commodity Exchange Act would not override state gambling law as applied to them.

Underdog's filing leans on last week's CFTC proposed rule, which would bring sports, political, cultural and weather-based event contracts within the legal definition of a swap, alongside an interim final rule carving casino-style gambling products out of that same definition. Underdog uses the two measures to draw a line between contracts traded on regulated exchanges at market-set prices and wagers taken by a licensed operator acting as the house.

The company also argues that pulling out of Tennessee would clash with federal requirements on fair market access and orderly trading, pointing to CFTC actions in separate Michigan and New York disputes involving Kalshi where the agency pushed back against state measures it viewed as disruptive to open positions and exchange operations.

Tennessee becomes the seventh state Underdog has sued, joining Connecticut, Massachusetts, New Mexico, Ohio, Washington and Wisconsin in cases that all argue federal derivatives rules bar states from treating its sports event contracts as unlicensed wagering. The complaint also notes CFTC lawsuits challenging state enforcement efforts in Arizona, Connecticut, Illinois, Kentucky, Minnesota, New Mexico, New York and Wisconsin.

The broader legal picture is split. The Third Circuit backed Kalshi's injunction in New Jersey, finding its event contracts were swaps preempted from state enforcement, and New Jersey has since asked the Supreme Court to take up the matter. The Ninth Circuit found express federal preemption applied in principle but still upheld the denial of Kalshi's injunction in Nevada, leaving appellate courts divided on how far federal authority over these contracts extends.