Underdog sued five states in federal court this week, preemptively seeking injunctions to prevent states from trying to shut down its sports prediction markets.
Those moves follow the company giving up DFS licenses in seven states in the previous week as it pushes fully into the prediction markets space.
On Tuesday, Sept. 8, the fantasy sports and prediction markets operator sued five states that are already engaged in litigation with other prediction markets operators, the Commodity Futures Trading Commission (CFTC), or both:
Underdog’s argument is predicated on the idea that the defendant states might soon pursue enforcement action against Underdog, as they have against other prediction market operators.
In all cases, the company is seeking a permanent injunction to prevent the states from enforcing their gambling laws against Underdog, as well as declaratory judgments from the courts stating that such state enforcement would be illegal. Stacie Stern, Underdog senior vice president of government affairs and partnerships, provided a statement to SBC Americas:
“We’re licensed by the federal government to offer markets, and we take our responsibilities as a federal exchange seriously and strictly comply with all regulations. Do we believe we are right on the law? Yes. Do we accept that these state gaming boards believe they are right on the law? Yes.
“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.”
Underdog points to state actions against Kalshi, others
Like Kalshi, the CFTC, and others in court battles across the country, Underdog maintains that the Commodity Exchange Act (CEA) gives the CFTC “sole regulatory authority” and “exclusive jurisdiction” over event contracts, in a manner that supersedes state gaming laws.
In all of the court filings, Underdog wrote that the states’ respective attempted enforcement actions against Kalshi and others suggest that Underdog is itself in danger of facing similar actions.
“Underdog now faces the imminent threat that Defendants will enforce [named state’s] gambling and sports wagering statutes against its federally regulated market,” reads a line in each of the filings.
Underdog gave further examples of why it feels threatened:
- The Massachusetts complaint notes that the state’s attorney general has already brought an enforcement action against Kalshi and obtained a preliminary injunction — since stayed pending Kalshi’s appeal — barring that company from offering sports-related event contracts.
- The Ohio filing states that, as well as ordering several CFTC-registered firms to stop offering sports, the Ohio Casino Control Commission (OCCC) is pursuing an administrative proceeding that would allow it to fine Kalshi $5m for offering event contracts.
- The Wisconsin suit acknowledges that the state AG’s office has already brought enforcement actions against five prediction market operators: Kalshi, Coinbase, Robinhood, Polymarket, and Crypto.com’s OG exchange.
Underdog banks on predictions potential
Underdog first began offering prediction markets in September 2025 via a partnership with Crypto.com. It has leaned heavily into that pivot in the year since, including by giving up its few state sports betting licenses.
It acquired Aristotle Exchange, a CFTC-registered designated contract market (DCM), in March and also registered with the National Futures Association (NFA) as a futures commission merchant (FCM). That dual DCM/FCM status allows it to both offer prediction markets on its own trading exchange and accept customer orders for event contracts that are traded on other DCMs, which it does in collaboration with firms including Kalshi.
Underdog entered into an agreement in late July to be acquired by UK-based fintech firm IG Group in a deal worth around $1.1bn. An IG Group investor presentation from the latter company at that time forecasted that prediction markets will go from accounting for 14% of Underdog’s total handle in 2025 to 46% in 2026 and up to 99% in the future.
Gaming companies enter court battle
While the glut of litigation surrounding sports prediction markets typically has been led either by states suing Kalshi or the CFTC and/or its registrants suing states, historic DFS outfit Underdog is the most high-profile gaming company to take the fight to states in court.
Other gaming and betting companies have also joined the litigation efforts in recent times.
Former betting exchange and sweepstakes gaming platform Novig, now a near-nationwide sports-focused prediction markets operator, sued five states in August. Like Underdog, it targeted Massachusetts, New Mexico, Washington, and Wisconsin.
Underdog CEO claims state demands forced DFS shutdown
While Underdog has not been sued by states in the way that the likes of Kalshi have, it has been hounded before. Last December, the Arizona Department of Gaming (ADG) announced it intended to revoke Underdog’s fantasy sports license as a result of its prediction markets collaboration with Crypto.com, a company the ADG targeted with a cease-and-desist order earlier in 2025.
According to the company’s founder and CEO Jeremy Levine, other states have also played hardball with Underdog. Levine announced on X on Sept. 5, three days before it filed its quintet of lawsuits, that the company will stop offering its DFS Drafts product as of Sept. 10 in seven states:
- Maryland
- Massachusetts
- Michigan
- Mississippi
- New Jersey
- Ohio
- Pennsylvania
“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 in the post, which amassed more than 1 million views in its first 48 hours. “So we had to choose. We could keep our fantasy licenses in those states, or surrender the licenses and offer effectively our full experience, minus Drafts.”
As well as Massachusetts and Ohio, which Underdog has now sued, Maryland, Michigan, New Jersey, and Pennsylvania are also fighting against prediction market platforms in court.
SBC Americas reached out to several of the gaming regulators in the states named by Levine:
- A Maryland Lottery and Gaming Control Agency spokesperson replied to state that “Underdog informed us that they would be winding down operations in Maryland.”
- A Pennsylvania Gaming Control Board spokesperson said via email that “we are not aware of anyone at the PGCB making a demand to anyone representing Underdog as described in that [X] post.” The PGCB added that if any gaming licensee chooses to pursue a line of business that its independent Bureau of Investigations and Enforcement and Office of Enforcement Counsel deem to be against the best interests of the state, the agencies could bring an enforcement action against that licensee.
Underdog’s Draft fantasy contests will still be available in approximately 35 U.S. jurisdictions once the seven-state shutdown is complete this week. The operator currently offers some form of event contracts for trading in 46 states, excluding only Arizona, Michigan, Nevada, and New York from its prediction markets product.
“For Underdog, the product speaks for itself. We’ve proven we can build the best fan experience and delivered it responsibly under every legal regime imaginable. A consistent, national framework is what’s best for customers, but we’ll keep growing either way,” Stern said in her statement.
“To the states we’re litigating with: we want to keep working together and keep the lines of dialogue open. And regardless of outcome, we will always take care of our customers. We look forward to the Supreme Court resolving this. And whatever the result, we’ll keep offering sports fans the best products in the industry and in a responsible way.”
Want to find out more about prediction markets? The Global Prediction Market Forum is being held in Lisbon on Oct. 1. Visit https://sbcevents.com/global-prediction-markets-forum/ for more details.
