Underdog Sues Five States Over Sports Event Contracts
United States.- 11 September 2026 | www.zonadeazar.com Underdog has filed federal lawsuits against five US states seeking to prevent local authorities from applying state gambling laws to the company’s sports-event contracts.
The actions were filed in Ohio, Massachusetts, Wisconsin, New Mexico and Washington, with Underdog seeking permanent injunctions preventing state enforcement against its prediction-market services.
The company argues that the products operate through markets regulated by the Commodity Futures Trading Commission (CFTC) and therefore fall under exclusive federal jurisdiction.
Five Federal Lawsuits
Underdog filed the actions on 8 September in federal courts across each of the five states.
The lawsuits cover:
- Ohio.
- Massachusetts.
- Wisconsin.
- New Mexico.
- Washington.
In every case, the company is attempting to prevent state authorities from applying gambling or wagering legislation to its prediction-market operation.
Permanent Injunction Requested
A central element of each complaint is a request for a permanent injunction.
If granted, the relevant state authorities would be prevented from enforcing specified gambling laws against Underdog’s federally regulated sports-event products.
The strategy is designed to secure legal protection before regulators bring additional enforcement actions.
Constitutional Challenge
Underdog is also seeking declaratory judgments over the legality of the state provisions.
The company argues that applying those rules to its federally regulated markets would violate the US Constitution’s Supremacy Clause.
Its case therefore centres on whether federal derivatives legislation pre-empts state gambling law.
CFTC at the Centre of the Argument
Underdog’s legal position relies heavily on the Commodity Futures Trading Commission.
It argues that the CFTC has exclusive jurisdiction over trading conducted through Designated Contract Markets.
The company also says it completed the relevant federal approval procedures required to offer and facilitate event contracts.
Sports Contracts and Federal Regulation
The regulatory dispute exists because sports-event contracts can appear similar to conventional wagers from a consumer perspective.
Prediction-market operators nevertheless argue that they are derivatives traded on federally regulated exchanges.
That legal distinction has become one of the central regulatory conflicts facing the US gaming industry.
States Defend Their Authority
A number of state regulators take the opposite position.
They argue that contracts based on sporting outcomes can function as sports betting and should therefore comply with state licences, taxes, restrictions and consumer-protection requirements.
The rapid expansion of prediction markets has consequently created a direct conflict between state gaming authority and federal commodities regulation.
Underdog Defends Its Position
Stacie Stern, Underdog’s Senior Vice President of Government Affairs and Partnerships, said the company respects state regulators but believes litigation has become necessary to resolve the jurisdictional dispute.
Underdog maintains that it is operating under federal regulation and complying with applicable requirements.
At the same time, the company acknowledges that state gaming regulators believe they retain authority over the products.
Conflicting Court Decisions
Stern also highlighted the increasingly fragmented legal landscape.
Courts around the country have reached differing conclusions about whether state regulators can restrict CFTC-regulated prediction markets.
For operators and regulators alike, this divergence is creating substantial legal uncertainty.
Supreme Court Resolution
Underdog believes the question may ultimately require a decision from the US Supreme Court.
The central issue is whether sports-event contracts should operate under one enforceable federal framework or remain subject to state-by-state gambling regulation.
The Supreme Court is already being asked to address a related dispute involving Kalshi and New Jersey.
States Selected Because of Previous Enforcement
Underdog said it deliberately filed in jurisdictions that had already taken legal action against other prediction-market businesses.
The strategy allows the company to challenge potential enforcement before comparable action is taken against its own products.
It also places several major jurisdictional disputes before federal courts simultaneously.
Massachusetts as a Reference Case
The Massachusetts complaint specifically refers to the state’s legal action against Kalshi.
Massachusetts secured a preliminary injunction preventing Kalshi from offering sports-related event contracts in the state, although that order was later stayed while the appeal proceeds.
Underdog argues that any comparable enforcement against its own federally regulated operation would similarly lack legal basis.
Pre-Emptive Legal Strategy
Underdog is effectively seeking to avoid waiting for cease-and-desist notices, penalties or direct enforcement actions.
Instead, the company wants federal courts to determine the jurisdictional question beforehand.
This represents a more aggressive legal approach to the state-versus-federal dispute.
Washington Filing
In Washington, the case was filed in the US District Court for the Western District of Washington.
The plaintiffs include Underdog Exchange DCM, Inc. and UDM, LLC.
The case was filed on 8 September and seeks declaratory and injunctive relief.
DFS Licence Surrenders
The lawsuits follow another major decision by Underdog.
The company surrendered its daily fantasy sports licences in seven states:
- Massachusetts.
- Maryland.
- Michigan.
- Mississippi.
- New Jersey.
- Pennsylvania.
- Ohio.
States Forced a Choice
Underdog founder and CEO Jeremy Levine said regulators in those seven states had told the company it could not simultaneously hold DFS licences and offer CFTC-regulated prediction products.
The business chose to retain its federal prediction-market strategy.
As a result, it surrendered the fantasy licences.
Fantasy Contests Being Withdrawn
New fantasy contests will no longer be available in most of those jurisdictions from 10 September.
Mississippi implemented the change from 9 September.
Existing contests and entries will continue to settle normally.
Prediction Products Remain Available
The withdrawal does not mean Underdog is exiting every affected state entirely.
In Colorado, Maryland, Massachusetts, New Jersey, Ohio and Pennsylvania, users can continue making certain prediction picks through the Underdog application.
The restrictions specifically affect fantasy contests, including Best Ball Drafts.
Ohio Wallet Arrangements
Ohio customers face additional rules around existing wallet balances.
Users can choose to retain funds for other Underdog products or withdraw them.
Where no action is taken, Underdog says it will attempt to return the balance by cheque, with some unclaimed funds eventually transferred to the Ohio Division of Unclaimed Funds.
Strategic Shift Towards Prediction Markets
Giving up DFS licences demonstrates the importance prediction markets now hold within Underdog’s strategy.
The company initially established much of its brand through fantasy sports.
The rapid growth of sports-event contracts is now reshaping its priorities.
Nearly $6.5 Billion in Notional Volume
Underdog-linked prediction markets have generated approximately $6.5 billion in notional trading volume since September 2025.
That growth helps explain why the company is prepared to defend its event-contract business even at the cost of surrendering state fantasy licences.
CFTC Is Also Suing States
Underdog’s interpretation has support from the federal regulator itself.
During 2026, the CFTC has sued multiple states to defend what it describes as exclusive federal jurisdiction over registered contract markets.
Actions have included litigation against New York and Kentucky alongside interventions in several other state disputes.
CFTC v Kentucky
In June, the CFTC sued Kentucky after the state attempted to enforce gambling law against federally registered markets.
The commission argued that state action conflicted with Congress’s decision to establish federal pre-emption over these markets.
It has also been involved in disputes concerning Minnesota, Illinois and Rhode Island.
New Jersey Goes to the Supreme Court
The dispute has now reached the country’s highest court through a separate Kalshi case.
New Jersey has asked the Supreme Court to decide whether states retain authority to regulate sports-related prediction-market products.
Differing federal appellate decisions have increased pressure for a definitive national ruling.
Two Regulatory Systems in Conflict
The dispute places two legal regimes against each other.
States have traditionally regulated sports betting through gaming commissions and state legislation.
Prediction-market operators argue that event contracts are derivatives governed through federally registered exchanges.
The outcome will determine whether sports-event products can continue expanding without conventional betting licences in every state.
Potential Impact on Sports Betting
A victory for Underdog and other prediction-market operators could significantly expand nationwide access to sports-event contracts.
Such products could remain available in jurisdictions where conventional online sports betting is restricted.
A victory for the states could instead require companies to obtain local licences and comply with rules similar to those governing sportsbooks.
Industry Context
Prediction markets have become one of the fastest-growing and most legally contested segments of the US gaming landscape in 2026.
Underdog, Kalshi, Polymarket, Robinhood and traditional betting groups are increasingly competing around sports-related event products.
At the same time, federal and state regulators remain deeply divided over who has ultimate authority.
Next Steps and Impact
Federal courts in Ohio, Massachusetts, Wisconsin, New Mexico and Washington will now consider Underdog’s requests for permanent protection against state enforcement.
The company wants the courts to confirm federal pre-emption and prevent state gambling laws from being applied to its event contracts.
The cases come as Underdog surrenders seven DFS licences and commits more heavily to its federally regulated prediction-market business.
With conflicting rulings already emerging and New Jersey seeking Supreme Court review, the dispute could become one of the defining legal battles for the future of US sports-event contracts and prediction markets.
Editó: @fonta
