Underdog sues Tennessee after Sixth Circuit Kalshi ruling
The company says it faces a “Hobson’s choice” in which either outcome would cause irreparable harm.
Key Takeaways
- Underdog has filed a federal lawsuit challenging Tennessee’s efforts to regulate prediction markets under state gambling laws and arguing that federal authority takes precedence.
- The complaint was filed in the U.S. District Court for the Middle District of Tennessee in Nashville, per The Tennessee Journal. It names Attorney General Jonathan Skrmetti and members of the Tennessee Sports Wagering Council as defendants.
- Underdog says enforcement is a “direct and imminent threat” to its business and users, leaving it a “Hobson’s choice” with irreparable harm either way.
U.S.- Underdog, the sports betting and prediction market company, has filed a federal lawsuit challenging Tennessee’s efforts to regulate prediction markets under state gambling laws. It argues that federal authority takes precedence over state-level oversight.
The complaint was submitted to the U.S. District Court for the Middle District of Tennessee in Nashville and names Attorney General Jonathan Skrmetti and members of the Tennessee Sports Wagering Council as defendants, The Tennessee Journal reported.
The company says enforcement would threaten its operations and customers, warning that it faces a choice in which either outcome could cause lasting damage. The complaint states: “The threat of Defendants’ attempted enforcement of Tennessee law poses a direct and imminent threat to Underdog’s business and its users, and leaves Underdog with a ‘Hobson’s choice’ wherein both its options will cause irreparable harm.”
The case follows a late-September decision by the U.S. Court of Appeals for the Sixth Circuit, which upheld the ability of regulators in Tennessee and Ohio to use state gambling laws against prediction market platforms. Kalshi had argued that its products were swaps regulated exclusively by the Commodity Futures Trading Commission (CFTC), meaning state gambling laws could not apply. However, Circuit Judge Julia Smith Gibbons rejected that argument and ruled that Kalshi had not demonstrated that its sports contracts meet the CEA’s definition of a swap because they are not linked to events with the type of financial, economic or commercial consequences contemplated by the law.
As for federal preemption, the court said that even if Kalshi’s contracts were considered swaps, the CEA would not prevent Ohio or Tennessee from enforcing their gambling laws against the company.
At the centre of the dispute is whether event contracts should be treated as financial products overseen by the Commodity Futures Trading Commission (CFTC) or as gambling activities subject to state rules. The CFTC issued an interim final rule on October 9 that excludes traditional gambling products, including sportsbook wagers and casino games, from the federal definition of a swap, and has also submitted two rules to the White House Office of Management and Budget (OMB) in an attempt to clarify federal oversight of prediction markets and contracts linked to real-world events.
Several states have urged the Supreme Court to intervene in the dispute.
Frequently asked questions (FAQs)
- Why did Underdog sue Tennessee? It argues that federal authority takes precedence over state oversight of prediction markets, and says enforcement of Tennessee law threatens its business and users.
- What did the Sixth Circuit decide on Kalshi? Judge Julia Smith Gibbons found Kalshi had not shown its sports contracts met the CEA’s definition of a swap. The court added that even if they were swaps, the CEA would not prevent Ohio or Tennessee from enforcing their gambling laws.
