Underdog has initiated legal action against five states seeking to prevent the enforcement of state gaming laws on its prediction markets, following the abandonment of its daily fantasy sports licenses in seven states.
Underdog filed lawsuits against Massachusetts, New Mexico, Ohio, Wisconsin, and Washington on September 8, challenging state authority over federally regulated sports event contracts.
The lawsuits aim to establish that applying state gambling laws to Underdog’s prediction-market business would violate the US Constitution’s Supremacy Clause.
Underdog claims that its event contracts fall under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC), making them exempt from state regulation as sports betting.
Strategic Shift
Although some viewed Underdog’s withdrawal of DFS operations in seven states as a retreat, the move may have been a strategic decision to pave the way for litigation.
The timing is crucial as Underdog moves to safeguard its prediction-market interests during the lucrative NFL season, the peak period of the US sports betting calendar.
The American Gaming Association (AGA) warned that prediction markets are competing with state-regulated sports betting, heightening the urgency of the regulatory battle as the NFL season begins.
During the 2026 NFL season, AGA estimates that Americans will legally wager $29.5 billion with regulated sportsbooks, with prediction markets impacting the growth of traditional betting.
Originally a DFS operator, Underdog’s focus on prediction markets as a primary growth opportunity is evident from its actions.
Each of the targeted states in Underdog’s legal action is already involved in litigation or enforcement actions against prediction-market operators, providing grounds for Underdog’s concerns of facing similar actions.
Legal Patchwork
Courts have issued varying rulings on whether sports event contracts fall solely under federal commodities law or are subject to state gambling regulations.
The ultimate resolution of this question may rest with the US Supreme Court, as New Jersey recently petitioned the court on this issue.
Stacie Stern, Underdog’s senior vice president of government affairs and partnerships, expressed hope that the Supreme Court will provide clarity on the matter.
With conflicting rulings across states, Stern emphasized the need for a consistent federal standard to regulate the industry effectively.