Underdog Sues Tennessee as Prediction Market Fight Puts Fantasy License at Risk

Tennessee informed Underdog to cease providing sports activities prediction contracts and threatened penalties that might lengthen past its prediction market enterprise, prompting Underdog to file one other lawsuit.

The firm sued Tennessee officers Tuesday, difficult a cease-and-desist letter the Tennessee Sports Wagering Council issued 4 days earlier. According to the criticism, regulators demanded that Underdog instantly halt its sports activities occasion contracts. They threatened penalties, referral to legislation enforcement, and attainable revocation of a separate affiliate’s fantasy sports activities license.

Underdog argues that its federally regulated contracts fall beneath the Commodity Futures Trading Commission’s unique jurisdiction, not Tennessee’s playing legal guidelines. The state argues that the merchandise are sports activities wagers that require a Tennessee sports activities betting license.

This confrontation is acquainted for prediction markets, however Underdog faces a very tough backdrop, as the Sixth Circuit Court of Appeals rejected similar arguments from Kalshi lower than three weeks in the past.

Tennessee targets greater than the alternate

The lawsuit, filed within the U.S. District Court for the Middle District of Tennessee, names Attorney General Jonathan Skrmetti and officers from the Sports Wagering Council as defendants.

Underdog needs a declaration that federal commodities legislation prevents Tennessee from making use of its playing legal guidelines to the corporate’s event-contract enterprise, together with a everlasting injunction blocking that enforcement.

The fantasy sports activities menace provides one other layer. Underdog Sports, a separate affiliate, holds a Tennessee fantasy sports activities license. According to the criticism, the council’s letter put that authorization at danger over the prediction market dispute.

That confrontation has penalties past whether or not Tennessee residents can commerce sports activities contracts. A struggle over the alternate might additionally have an effect on an affiliated enterprise working beneath a state-issued license.

Underdog started providing occasion contracts in Tennessee on August 28, following its March acquisition of Aristotle Exchange and its related clearing group. Its federal registrations embrace a delegated contract market, which operates an alternate, and a futures fee service provider, which facilitates buyer buying and selling.

Tennessee is difficult whether or not that federal framework displaces the state’s authority over sports activities wagering, not merely whether or not Underdog has federal registrations.

Kalshi’s loss creates a right away impediment

Last month, the Sixth Circuit vacated a preliminary injunction that had protected Kalshi from Tennessee enforcement. In the consolidated appeals, it additionally affirmed an Ohio courtroom’s refusal to grant Kalshi comparable safety.

The appeals courtroom discovered that the sports activities occasion contracts doubtless didn’t qualify as “swaps” beneath federal commodities legislation. It additionally concluded that, even when they did, federal legislation wouldn’t stop Tennessee and Ohio from implementing their playing legal guidelines. Those conclusions undercut the federal-preemption concept operators have used to problem state restrictions.

Underdog’s criticism acknowledges the adversarial precedent and says it’s preserving its appellate rights whereas in search of safety from Tennessee enforcement. It just isn’t getting into the case as although the Sixth Circuit dispute by no means occurred.

Kalshi is attempting to reopen that struggle. On Oct. 9, it petitioned for panel rehearing and rehearing by the total Sixth Circuit, arguing that the choice conflicts with different rulings and that new CFTC rulemaking warrants reconsideration. The petition itself doesn’t overturn the September choice or restore Kalshi’s Tennessee injunction.

For Underdog, which means submitting now each challenges Tennessee’s motion and retains its authorized claims alive whereas the broader appellate dispute continues.

New CFTC motion offers operators one other argument

The federal regulatory place can also be evolving.

Last week, the CFTC proposed clarifying that sports-related occasion contracts fall inside the federal definition of swaps. The company individually issued an interim closing rule excluding qualifying casino-style playing merchandise from that definition.

That distinction issues as a result of the therapy of sports activities contracts as swaps is central to the operators’ jurisdictional argument. A federal rule expressly addressing these merchandise might turn out to be important within the ongoing litigation.

Seven states, one recurring dispute

Tennessee brings Underdog’s state-by-state litigation marketing campaign to seven jurisdictions. The firm beforehand sued officers in:

  • Connecticut

  • Massachusetts

  • New Mexico

  • Ohio

  • Washington

  • Wisconsin

Those circumstances share the identical primary query: Does federal regulation of an occasion contract alternate stop states from treating its sports activities merchandise as unlicensed playing?

Courts stay divided. The Sixth Circuit’s place favors state enforcement, whereas the Third Circuit has sided with Kalshi within the New Jersey dispute. The Ninth Circuit has dominated towards Kalshi in litigation involving Nevada regulators and California tribes.

The New Jersey case is now earlier than the Supreme Court on a pending petition. The justices haven’t agreed to listen to it, and evaluation requests shouldn’t be confused with a forthcoming ruling.

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