Underdog sues Tennessee over state gaming law enforcement against its prediction market business

Sports betting and prediction market company Underdog has filed a complaint against the state of Tennessee, arguing that the state has overstepped by applying its gaming laws to prediction markets instead of recognizing federal preeminence over the sector.

According to a report by The Tennessee Journal, the complaint was filed with the US District Court for the Middle District of Tennessee in Nashville. The named defendants are the state's attorney general, Jonathan Skrmetti, and members of the Tennessee Sports Wagering Council, the state's gaming regulator.

The lawsuit comes after a Sixth Circuit ruling in late September, which found that gaming regulators in Tennessee and Ohio may use state gaming laws to enforce rules against prediction market platforms. Underdog contends that the threat of enforcement under Tennessee law is a direct and imminent danger to its business and its users. In the complaint, it says the situation leaves the company with a "Hobson's choice" in which both options would cause irreparable harm.

The broader regulatory picture remains unsettled. The CFTC has recently moved forward with an interim rule and a proposed classification of sports event contracts, but state gaming regulators are generally skeptical of the agency's guidance. Most of them insist that the Supreme Court of the United States step in to resolve the question.

The country's highest court has so far declined to do so and is not actively considering prediction market cases. As a result, attorneys general, gaming regulators and private companies continue to litigate against one another in a series of turf battles. Those disputes have yet to settle the underlying conflict and, at best, give a temporary reprieve to whichever party prevails, a result that has varied from case to case.