Underdog has bitten another state, filing a federal lawsuit on Wednesday against Connecticut officials amid the state’s recent spate of enforcement actions against the prediction markets industry.
In Underdog’s complaint filed on Wednesday, Sept. 16, the operator asked the court to prevent Attorney General William Tong and the Connecticut Department of Consumer Protection (DCP) from “unlawfully” exercising state authority over Underdog’s event contracts.
The complaint asked for a declaratory judgment that Connecticut cannot apply state gaming laws to event contracts, as well as a permanent injunction preventing state authorities from enforcing any state laws related to gambling in relation to Underdog’s prediction markets. Underdog also wants the judge to block any efforts by Connecticut to regulate those products.
Tong took a dim view of the lawsuit in a statement provided to SBC Americas.
“This is nothing more than the recycling of failed arguments from other prediction markets,” Tong said. “Multiple courts have affirmed that sports event contracts are no different than sports betting and are not magically shielded by federal law.”
Underdog sues a week after receiving C&D
Underdog filed its Sept. 16 complaint seven days after its Underdog Predict subsidiary was one of nine companies sent a cease-and-desist letter by the DCP. The regulator accused Underdog, as well as Novig, Polymarket, and ProphetX, of illegally offering sports-related prediction markets to Connecticut residents.
Underdog included its cease-and-desist letter as an exhibit in its lawsuit. In the notice, dated Sept. 9, DCP Director of Gaming Kristofer Gilman ordered Underdog to immediately end all advertising, promotion, and operation of sports event contracts within the state, as well as to allow all Connecticut residents to withdraw their funds.
Gilman said that if Underdog did not comply, it could face civil penalties under the Connecticut Unfair Trade Practices Act and potential criminal charges under state gaming law.
Connecticut also cast the net beyond exchanges by issuing almost 30 subpoenas to companies ranging from gaming service and data providers to media organizations and tech giants’ app stores, as it seeks to cut off prediction markets’ support system.
Underdog says it is clearly under threat
Underdog cited Connecticut’s actions as proof that it faces the “imminent threat” that the state will try to apply Connecticut’s gambling and sports wagering laws against Underdog’s prediction markets. Underdog, like other prediction market platforms, maintains that sports event contracts are federally authorized under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC).
“Defendants’ threat of enforcement is plainly inconsistent with Article VI, Clause 2, of the United States Constitution (‘Supremacy Clause’) and any enforcement efforts are therefore preempted,” wrote counsel for Underdog. The company added that the CFTC has itself confirmed that position by filing its own federal lawsuit against Connecticut in April.
Underdog also wrote that the fact that Tong sued Kalshi in state court in late August means that “Underdog therefore faces a real and imminent risk of enforcement, exposing it to civil penalties, potential criminal liability, forced cessation of operations in Connecticut, and severe collateral consequences to its nationwide operations.”
Connecticut took Kalshi to court after federal judge Vernon Oliver denied Kalshi’s request for a preliminary injunction against the state in the parties’ federal court case, a decision which Kalshi appealed to the Second Circuit.
Asked for comment on the Underdog lawsuit, DCP Director of Communications Kaitlyn Krasselt told SBC Americas by email that the department is not able to comment on pending litigation. She added that the state’s position is clearly outlined in recent filings in other cases, pointing to Judge Oliver’s decision in the Kalshi case, which she said “supported the state’s position.”
Sometimes you have to sue, says Underdog SVP
Although DCP Commissioner Bryan Cafferelli told local media that some companies responded to their C&D by opening a line of communication with the department, Underdog has taken the fight to court as it did recently in other states.
Incidentally, Underdog is not the only recipient to respond adversely. Robinhood filed a motion to intervene in the CFTC’s lawsuit against Connecticut, claiming that the state’s order represents an “escalating threat.”
While Underdog took Connecticut to court after receiving a C&D, it already sued five other states that are litigating with other prediction markets companies but have not taken firm steps against Underdog. In separate lawsuits filed last week, Underdog preemptively sought injunctions in:
- Massachusetts
- New Mexico
- Ohio
- Washington
- Wisconsin
Underdog SVP of Government Affairs and Partnerships Stacie Stern told SBC Americas last week that the company believes it is “right on the law” but also acknowledges that states feel the same way about their contrasting perspective. She added that while suing is regrettable, it is sometimes the only way to resolve a dispute.
Data provided to SBC Americas by TickerTracker suggests that Underdog did more than $204m in notional sports event contract trading volume on its in-house Underdog Exchange only between Sept. 10-16. Underdog routes its trading through multiple different channels, and the operator’s own data suggests it recorded almost $600m in total trading volume between Sept. 1-16. It’s big-money business, and Underdog is prepared to fight for it.
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.
