Less than a month after an injunction freezing Tennessee’s ability to regulate sports-event contracts on prediction markets was vacated by the Sixth Circuit Court of Appeals, a new lawsuit by another prediction market company was filed against the Volunteer State on Tuesday.
The lawsuit was filed by Underdog Exchange DCM, Inc. and UDM, LLC, which operate the prediction market business of Underdog Sports Holdings, Inc., a company that British financial services firm IG Group agreed to acquire for up to $1.3 billion in July.
In their lawsuit, the prediction market company revealed it received a cease-and-desist letter from the Tennessee Sport Wagering Council on October 9, calling for Underdog to immediately halt its sports-event contracts in Tennessee, notifying them fines of up to $25,000 could be imposed per offense, threatening to refer the company to law enforcement, and warning that a fantasy sports license held by Underdog Sports LLC, a separate affiliated company, could be revoked if the company did not act.
Seeking a declaration that Tennessee’s gambling laws cannot be applied to their sports-event contracts, Underdog argues that the contracts are legally classified as swaps, which Congress gave the Commodity Futures Trading Commission (CFTC) exclusive authority to regulate.
As a result, Underdog argues that federal law leaves no room for overlapping regulations imposed by Tennessee, and that applying the gambling laws already on the books in Tennessee to Underdog would interfere with the company’s operations that are already subject to federal regulations.
The case has been assigned to U.S. Chief District Judge William Campbell, who was appointed by President Donald Trump in 2018, and became chief judge in 2024.
Underdog is represented by Thomas H. Lee of Nelson Mullins Riley & Scarborough, a national firm with a Nashville office, as well as Robert Fumerton, David Meister, and Judith Flumenbaum of the New York firm, Skadden, Arps, Slate, Meagher & Flom.
Underdog’s arguments appear similar to those rejected last month by a panel of judges on the Sixth Circuit, which vacated a preliminary injunction granted by another district judge in the lawsuit Kalshi filed in January, allowing Tennessee to move forward with enforcement.
Kalshi’s request was submitted the same day the CFTC released a proposed rule that would expressly include sports-event contracts within the federal definition of swaps, supporting the agency’s position that such contracts fall under its exclusive regulatory jurisdiction.
Recent years have seen an unprecedented growth in prediction markets, with Pew Research Center reporting last month that trading volume on two large platforms doubled between May and July alone. Since 2024, the researchers recorded a 6,400 percent increase in volume, from $810 million in July 2024 to $53 billion in July 2026.
In 2024, the odds listed on prediction markets correctly reflected the outcome of many races, with a Vanderbilt University study finding one market was accurate in 93 percent of races.
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Tom Pappert is a 2025 recipient of the Dao Prize and the lead reporter for The Tennessee Star. He also reports for the Star News Network. Follow Tom on X. Email tips to [email protected].
Image “Underdog Sports” by Underdog Sports.
