Underdog has opened a new front in the legal fight over sports prediction markets, filing lawsuits in five states while simultaneously stepping away from daily fantasy sports licensing in seven jurisdictions. The company is asking federal courts in Ohio, Massachusetts, Wisconsin, New Mexico and Washington to prevent state officials from using gambling laws to restrict the sports-event contracts Underdog says it offers through federally regulated markets.
The timing is important. The lawsuits came only days after Underdog founder and CEO Jeremy Levine announced that the company would surrender its DFS licenses in Massachusetts, Maryland, Michigan, Mississippi, New Jersey, Pennsylvania and Ohio. Existing drafts in those states can continue, according to Levine, but customers can no longer enter new drafts. The business is therefore making a fairly clear choice about where it wants to concentrate its legal and product strategy.
At the center of the dispute is a question that has quickly become one of the most consequential in U.S. gaming regulation: when a sports-related event contract trades on a federally regulated market, is it primarily a financial derivative overseen by the Commodity Futures Trading Commission, or can a state still treat the product as gambling and apply its own gaming statutes? Underdog argues that federal law controls. Several states, judging by the wider litigation already under way, are not convinced.
The five new complaints are designed to address that conflict before regulators take direct action against Underdog. Rather than waiting for a cease-and-desist order or another enforcement step, the company is seeking declaratory judgments and permanent injunctions that would block the states from asserting jurisdiction over the products at issue.
Five Lawsuits Put State Enforcement in Focus
Each case targets a different state, but the core argument is essentially the same. Underdog says state gaming regulators and attorneys general should not be allowed to regulate or terminate access to event contracts that trade on markets subject to federal oversight. The company says those contracts went through the required CFTC approval process and can therefore be legally offered and facilitated in the states named in the lawsuits.
The requested remedy goes beyond a temporary pause. Underdog is asking the courts for permanent injunctions and declarations that state gambling provisions, when applied to these prediction-market products, conflict with the Supremacy Clause of the U.S. Constitution. In practical terms, the company wants a federal court to say that the relevant federal regulatory framework displaces state gambling rules for these particular contracts.
Underdog also says the threat of state enforcement is immediate rather than theoretical. Its complaints describe a situation in which regulators could apply gambling and gaming statutes to a market that the company views as already governed by federal commodities law. That is why the suits were filed preemptively: the company is attempting to settle the jurisdictional question before state action forces a shutdown.
No public response from Underdog was included beyond the filings and Levine’s earlier comments about the DFS decision. Messages seeking additional comment were not returned at the time of the original report.
The CFTC-versus-State Question
Underdog’s legal position rests heavily on the claim that the CFTC has exclusive jurisdiction over trading on designated contract markets. The company says it followed the federal approval route and that the resulting event contracts should be treated as lawful derivatives rather than as ordinary sportsbook wagers. If a court accepts that reasoning, state gaming agencies would have a much narrower role in determining whether those contracts can be offered.
States have a different incentive. Gambling regulation has traditionally been one of the areas where state governments exercise substantial control, including licensing, consumer rules and enforcement against unapproved operators. Sports-event contracts blur that boundary because they can look familiar to a bettor while being structured and traded through a financial-market framework. That overlap is precisely what is producing the current wave of lawsuits.
The new Underdog cases therefore are not isolated disputes about one app or one product screen. They sit inside a broader contest over which regulator gets the final word. The legal answer will matter not only for companies already offering prediction markets but also for the shape of the sports-gaming market more generally. For now, however, different courts are producing different interim outcomes, which makes the operating environment unusually fragmented.
Kalshi Litigation Forms the Immediate Backdrop
Every state sued by Underdog is already involved in litigation concerning other prediction-market companies, most notably Kalshi, the CFTC, or both. Those cases provide the legal backdrop for Underdog’s decision to move first rather than wait for similar enforcement to reach its own products.
In Washington, Kalshi has been largely prevented from operating after a preliminary-injunction ruling found that its activity ran afoul of state gambling and consumer-protection rules. Massachusetts has also imposed heavy restrictions while litigation continues. In Ohio, a federal judge ruled that Kalshi and similar platforms function as gambling operations and must comply with state gaming law.
Wisconsin has developed into a direct federal-state confrontation, with the CFTC suing the state in response to litigation involving Kalshi. In New Mexico, three pueblos and one tribe have argued that a federal judge should prohibit sports-event contracts and other prediction-market activity on sovereign tribal lands. Closing arguments in that dispute were completed shortly before Underdog filed its own cases.
None of those proceedings has produced a single nationwide rule. Appeals and related challenges remain active across all five jurisdictions. That uncertainty helps explain why Underdog is pursuing its own injunctions rather than assuming the outcome of another company’s case will automatically protect it.
Why Underdog Gave Up Seven DFS Licenses
The legal strategy becomes easier to understand when viewed alongside the DFS withdrawals. Levine said the seven states had taken a legal position that forced Underdog to choose between keeping fantasy-sports licenses and offering what he described as the company’s CFTC-licensed products. The company chose the latter.
That means Massachusetts and Ohio now appear in both parts of the story: they are among the states where Underdog surrendered DFS licenses and also among the five states named in the new prediction-market lawsuits. Maryland, Michigan, Mississippi, New Jersey and Pennsylvania are affected by the DFS exit but are not among the five jurisdictions targeted by the lawsuits described in the report.
For customers, the immediate distinction is straightforward. Drafts that had already been entered can continue normally, but new drafts are no longer available in the seven states where the licenses were surrendered. Levine said Underdog has ideas about how drafts might return, but he stopped short of promising a timeline or a specific product structure.
The decision shows how licensing categories that once looked separate can collide when an operator expands into prediction markets. A company can comply with one regulatory framework and still face pressure from another authority that classifies the same customer activity differently. Underdog is effectively betting that the federal framework should take precedence and has reorganized part of its business around that position.
What the Cases Could Decide
The immediate court battles will turn on jurisdiction, injunction standards and the relationship between federal commodities regulation and state gambling law. The broader commercial question is whether prediction-market operators can build a consistent national product or must continue adjusting state by state.
A victory for Underdog in one or more of the five states would not necessarily end the national debate, particularly while other cases remain active. A loss, on the other hand, could reinforce the idea that federal approval does not automatically remove a sports-event contract from state gambling oversight. Because the current litigation involves multiple courts and legal theories, the path to a settled rule may remain uneven for some time.
For now, the company has made its priorities unusually visible. It has surrendered seven DFS licenses, accepted that new fantasy drafts will disappear in those states for the time being, and gone to federal court in five jurisdictions to defend access to its prediction-market products. That is a significant strategic shift, and the next rulings will help determine whether the gamble pays off.
Further Context
The situation also illustrates why product labels matter less than regulatory classification. A customer may see a sports prediction and think it resembles a wager, while the company may describe the same transaction as a contract traded on a designated market. The courts now have to decide which legal framework controls that activity, not simply which description sounds more familiar.
Until those rulings arrive, customers and operators should expect a patchwork rather than a single national answer. Underdog’s separate lawsuits in five jurisdictions underline that reality. The company is making the same broad federal-preemption argument repeatedly because each state’s enforcement posture creates a separate operational risk.
The DFS withdrawals also show that the dispute already has consequences before any final judgment. Seven licenses have been surrendered, new drafts are unavailable in those states and the company has chosen to prioritize a different product category. In other words, this is no longer only a theoretical argument about future regulation; it has already changed what customers can access today.
The five-state filing strategy also limits the temptation to describe the conflict as a single national lawsuit. Each jurisdiction has its own regulator, procedural history and related litigation, so Underdog must win protection in the courts that can actually restrain those officials. That makes the legal campaign broader and more expensive, but it also gives the company several opportunities to test the same federal-preemption theory.