Underdog Sues Five States to Block Gambling Law Enforcement on CFTC-Regulated Prediction Markets
Underdog filed suit against five states on September 8 seeking injunctions against gambling law enforcement on its CFTC-regulated prediction markets. The cases cite actions against Kalshi and others, following fantasy license surrenders in seven states. Stern described the regulatory landscape as “a mess” requiring Supreme Court clarification on federal preemption.
SCCG Take — This litigation tests whether CFTC authority overrides state gambling rules for event contracts. Operators should prepare for prolonged uncertainty until federal courts or the Supreme Court establish uniform standards.
Underdog has filed federal lawsuits against Massachusetts, New Mexico, Ohio, Washington and Wisconsin. The fantasy sports and prediction market operator filed the cases on September 8, seeking permanent injunctions that would prevent those states from applying gambling laws to its prediction market products. It also requests declarations that any such enforcement would be unlawful.
The action follows Underdog’s surrender of daily fantasy sports licenses in seven states as it shifts focus to prediction markets. Those states are Maryland, Massachusetts, Michigan, Mississippi, New Jersey, Ohio and Pennsylvania. The company maintains that its prediction markets are subject to exclusive federal oversight by the Commodity Futures Trading Commission under the Commodity Exchange Act.
Enforcement Precedents and Industry Fragmentation
Court filings cite prior state actions against other prediction platforms as evidence of imminent risk. The Massachusetts complaint references the state attorney general’s preliminary injunction against Kalshi on sports-related event contracts. In Ohio the Ohio Casino Control Commission ordered CFTC-registered companies to cease sports contracts and initiated proceedings that could impose a $5 million fine against Kalshi. The Wisconsin suit references enforcement involving Kalshi, Coinbase, Robinhood, Polymarket and Crypto.com’s OG exchange.
Stacie Stern, Underdog senior vice president of government affairs and partnerships, said: “We’ve worked with them, we respect them, and we didn’t want to sue, but sometimes it’s the only way to resolve a dispute. With cases and divergent rulings across the country, everyone can see what’s happening in our industry: it’s a mess. We need the Supreme Court to decide whether we’ll have one, enforceable federal standard or state-by-state regulation.” Founder and CEO Jeremy Levine said several states required Underdog to choose between maintaining fantasy sports licenses and continuing to offer its CFTC-approved prediction market products. “Those states have taken a legal viewpoint we disagree with: if we offer our CFTC-licensed products we cannot offer fantasy sports in those states,” Levine wrote.
Path to National Regulatory Resolution
Underdog began offering prediction markets in September 2025 through a partnership with Crypto.com. It acquired Aristotle Exchange in March, registered as a futures commission merchant with the National Futures Association, and agreed in July to be acquired by IG Group in a deal valued at approximately $1.1 billion. Investor projections show prediction markets rising from 14% of total handle in 2025 to 46% in 2026 and eventually 99%.
The company’s prediction products are now available in 46 states. Similar lawsuits filed by Novig in August signal that the underlying federal-versus-state conflict is not isolated. Resolution at the Supreme Court level would replace the current patchwork with a single enforceable framework, allowing operators to allocate capital and compliance resources with greater certainty.
Reporting: World Casino News
Generated by SCCG’s automated editorial system from published source reporting. SCCG Management holds editorial responsibility.
This lawsuit forces the federal preemption question—expect years of uncertainty until the Supreme Court draws the line.
We've watched this collision coming for months across 545 partnerships. Underdog just turned regulatory confusion into constitutional litigation. The CFTC-versus-state-law fight will reshape every prediction market, event contract, and hybrid product roadmap until federal courts settle who has final say. Operators can't wait this out.
- Underdog filed federal suits in five states seeking injunctions against gambling enforcement on CFTC-regulated markets
- Company surrendered fantasy licenses in seven states rather than abandon prediction products
- Prior enforcement against Kalshi, Coinbase, Robinhood, Polymarket cited as proof of imminent risk
SCCG angle: SCCG connects operators to the regulatory, compliance, and lobbying counsel navigating this exact federal-state conflict. We broker the relationships that turn constitutional chaos into strategic optionality while litigation plays out—whether you're launching, defending, or pivoting product lines around CFTC jurisdiction.
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