Underdog Sues Five States, Days After Giving Up Fantasy Licences in Seven

The company has gone to federal court in Ohio, Massachusetts, Wisconsin, New Mexico and Washington, asking each to rule that state gambling law cannot reach a CFTC-regulated contract. It is the first prediction-market operator to sue pre-emptively across a whole group of states rather than wait to be sued.

• Underdog has filed lawsuits in Ohio, Massachusetts, Wisconsin, New Mexico and Washington seeking to stop each state applying its gambling laws to the company's sports event contracts
• Each suit asks for a permanent injunction and a declaratory judgment that the challenged provisions violate the Supremacy Clause of the US Constitution as applied to its contracts
• The argument is that the Commodity Futures Trading Commission has exclusive jurisdiction over trading on designated contract markets, and that Underdog has complied with CFTC approval procedures
• It follows the company's decision to surrender daily fantasy sports licences in seven states: Massachusetts, Maryland, Michigan, New Jersey, Mississippi, Pennsylvania and Ohio
• All five states sued are already in litigation with Kalshi, the CFTC, or both

Suing First, in the States Where Kalshi Has Been Losing

Underdog has filed in federal district court in five states, seeking to pre-empt any attempt to shut down its sports event contracts. The filings ask each court to prevent state gaming regulators or attorneys general "from unlawfully exercising jurisdiction over, regulating, or terminating Underdog's offering of lawful derivatives contracts on federally regulated markets", according to a report by CDC Gaming.

Each suit seeks a permanent injunction and a declaratory judgment that the challenged state provisions, or any other state gambling or wagering laws as applied to Underdog's prediction markets, violate the Supremacy Clause. The underlying claim is jurisdictional: that the Commodity Futures Trading Commission has exclusive jurisdiction over trading on designated contract markets, and that Underdog has fully complied with CFTC approval procedures authorising it to offer event contracts in those states. The company says it now faces an imminent threat that each state will enforce its gambling statutes against a federally regulated market. Messages seeking comment were not returned.

The choice of states is not random. Kalshi has been largely barred from Washington after a judge found it likely violated state gambling and consumer protection laws. It is heavily restricted in Massachusetts while a case proceeds. The CFTC has sued Wisconsin in response to that state's action against Kalshi. A federal judge in Ohio has ruled that Kalshi and similar platforms are gambling operations and must comply with state gaming law. And in New Mexico, three pueblos and a tribe closed arguments this week asking a federal judge to bar Kalshi from offering sports event contracts on sovereign tribal land.

The filings came days after chief executive and founder Jeremy Levine announced that Underdog would shut its daily fantasy offering in seven states after the NFL kickoff, surrendering licences in Massachusetts, Maryland, Michigan, Mississippi, New Jersey, Pennsylvania and Ohio. Existing drafts continue; new ones do not. Levine set out the trade-off on X. "Those states have taken the legal viewpoint we disagree with," he wrote. "If we offer our CFTC-licensed products we cannot offer fantasy sports in those states. So, we had to choose. We could keep our fantasy licenses in those states or surrender the licenses and offer effectively our full experience, minus drafts."

Giving Up a Licence Is What Makes the Lawsuit Possible

The sequence only makes sense read backwards. A licensed daily fantasy operator is a state licensee, and a state licensee arguing that state gaming law cannot reach it is in an awkward position, both legally and in front of the regulator that renews its licence. By surrendering the licences first, Underdog removed the hook. It now approaches those five states purely as a CFTC-regulated venue with nothing for a state gaming board to suspend. That is a considered legal strategy rather than a retreat, and it is the opposite of what the surrender looked like when it was announced last weekend.

This Is the Divergence in the Sector, Now Fully Visible

Three positions are now in the open. Kalshi fights every state, keeps operating and absorbs penalties. Robinhood geofences and waits for an appellate ruling, protecting a brokerage business for which sports contracts are an add-on. Underdog surrenders what a state can take away and then sues in federal court on constitutional grounds. Each reflects what the company has to lose rather than a different reading of the statute, and the sector will end up bound by whichever approach produces the first appellate answer.

Five District Courts Is Five Chances to Create a Split

Filing in five districts at once maximises the odds of a favourable ruling somewhere, and equally the odds of contradictory rulings, which is how a question reaches the Supreme Court. New Jersey has already petitioned on the same jurisdictional question. Underdog is not obviously trying to avoid that outcome. A company with a smaller book than Kalshi's has less to lose from a period of legal chaos and rather more to gain from a definitive federal answer, and the states now have to litigate the same question in five places at once.

Underdog gave up seven licences to be able to file five lawsuits. That is not a company in retreat; it is a company clearing the board before an argument it intends to have.