Underdog sues five states over prediction markets

Underdog filed suit in federal court in Massachusetts on Sept. 8 against Massachusetts, New Mexico, Ohio, Wisconsin and Washington, asking a judge to block state gaming authorities from using gambling laws against its prediction-market business. In the complaint, the company seeks declaratory and injunctive relief and says its event contracts are lawful derivatives traded on federally regulated markets.

As covered in our earlier report on Novig's Wisconsin suit and New Jersey's Supreme Court petition, the same question is now moving through several courts: whether sports event contracts belong under federal commodities law or state gambling law. The five states named in Underdog's suit are already involved in related litigation or enforcement over prediction-market operators.

Underdog says Congress gave the Commodity Futures Trading Commission sole jurisdiction over event contracts and other derivatives on designated contract markets, and that states cannot regulate them as sports betting. The company also says it operates a federally regulated designated contract market and a federally registered futures commission merchant, and that any state attempt to force it to stop would violate the Constitution's Supremacy Clause.

The Massachusetts filing says Underdog began offering its event contract listings to users in the state on Sept. 4 and faces an imminent threat of enforcement from the attorney general and the Massachusetts Gaming Commission. It also points to Massachusetts's own case against Kalshi, in which a preliminary injunction, stayed pending appeal, barred Kalshi from offering sports-related event contracts to people in the state.

In an amicus brief filed on Sept. 10 in the Massachusetts Supreme Judicial Court, the CFTC said it has exclusive jurisdiction over U.S. commodity derivatives markets, including event contract markets commonly called prediction markets, and described its filing as part of a wider effort to resist state encroachment.

The action came just days after Underdog founder and chief executive Jeremy Levine said the company would shut down its Drafts fantasy product in seven states, including Massachusetts, Maryland, Michigan, Mississippi, New Jersey, Pennsylvania and Ohio, after regulators told it it could not keep those fantasy licences and offer its CFTC-approved prediction market product at the same time. Levine said the company had been forced to choose, and that contests already entered would run to completion while no new drafts would be accepted.

The dispute lands as the NFL season begins. The American Gaming Association said prediction markets are increasingly cannibalising state-regulated sports betting, and estimated that Americans will legally wager $29.5 billion with regulated sportsbooks during the 2026 NFL season, virtually unchanged from last year.