Five-State Filing Challenges State Gaming Authority
Underdog, the prediction-market operator that previously ran daily fantasy sports products, filed lawsuits on Tuesday, September 8, against Massachusetts, New Mexico, Ohio, Wisconsin, and Washington. The complaints request a permanent injunction barring each state from enforcing its gaming statutes against Underdog’s event-contract business.
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At the core of the legal theory is the Supremacy Clause. Underdog contends that its sports event contracts are commodities traded under the exclusive oversight of the Commodity Futures Trading Commission, and that state gambling laws therefore cannot be applied to the product. The company asked the courts to issue declarations to that effect.
Each of the five named states is already pursuing litigation or enforcement proceedings against other prediction-market platforms, a circumstance Underdog points to as evidence of a concrete threat of similar action against it.
DFS Licenses Withdrawn Days Earlier
The filings landed just days after Underdog relinquished its daily fantasy sports licenses in Maryland, Massachusetts, Michigan, Mississippi, New Jersey, Ohio, and Pennsylvania. The company had built its initial revenue on DFS before shifting its focus to event contracts, and the license withdrawals signal that prediction markets have become its primary commercial priority.
The timing also lines up with the opening of the NFL season, the heaviest wagering period in the U.S. sports-betting calendar. The American Gaming Association has flagged the rapid growth of prediction markets as a factor in stalled expansion of state-regulated sportsbooks. The trade group projects Americans will place $29.5 billion in legal wagers with regulated sportsbooks during the 2026 NFL season, a figure it characterizes as essentially flat year over year.
Supreme Court Petition Adds Urgency
Courts across the country have issued conflicting rulings on whether sports event contracts are governed solely by federal commodities law or remain subject to state gambling regulation. Last week, New Jersey asked the U.S. Supreme Court to weigh in on whether federal commodities law preempts state regulation of event contracts sold through CFTC-regulated exchanges.
Stacie Stern, Underdog’s senior vice president of government affairs and partnerships, told SBC Americas that the company is looking to the high court for a definitive answer.
“We’ve worked with [state regulators], we respect them, and we didn’t want to sue, but sometimes it’s the only way to resolve a dispute,” Stern said. “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.”
Why It Matters
The outcome of Underdog's suits could determine whether states retain authority to regulate sports event contracts sold through CFTC-regulated exchanges. A ruling in the operator's favor would limit state gaming commissions' power over a product category the American Gaming Association says is already drawing wagers away from licensed sportsbooks. The question is also before the Supreme Court on a separate New Jersey petition, making the coming months consequential for prediction-market operators and state regulators alike.
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