Underdog Launches Five-State Lawsuit Offensive in Prediction Markets Clash

Just days after surrendering its daily fantasy sports licenses in seven states, Underdog Fantasy has launched lawsuits against five of them to block state regulators from banning its prediction markets.

On Tuesday (September 8), the operator sued Massachusetts, New Mexico, Ohio, Wisconsin, and Washington. In doing so, it becomes the latest prediction platform to challenge state authority over federally regulated sports event contracts.

The complaints seek declarations that applying state gambling laws to Underdog’s prediction-market business would violate the US Constitution’s Supremacy Clause.

Underdog argues its event contracts fall under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC), meaning states cannot regulate them as sports betting.

Strategic Shift

When Underdog pulled its DFS operations from Maryland, Massachusetts, Michigan, Mississippi, New Jersey, Ohio, and Pennsylvania, some saw it as a retreat, but the company may have simply been preparing the ground for litigation.

The timing is also significant. Underdog is moving to protect its prediction-market interests just as the NFL season, the most lucrative period of the US sports betting calendar, gets underway.

The American Gaming Association (AGA) has warned that prediction markets are increasingly cannibalizing state-regulated sports betting, adding urgency to the regulatory battle.

The trade group estimates Americans will legally wager $29.5 billion with regulated sportsbooks during the 2026 NFL season, virtually unchanged from last year. The AGA blames the rapid expansion of prediction markets for the stalled growth of traditional betting.

While Underdog began life as a DFS operator, its decision to sacrifice licenses for its original product suggests it now views prediction markets as a far greater growth opportunity.

Each of the five states in Underdog’s crosshairs is already involved in litigation or enforcement action involving prediction-market operators, which gives the operator grounds to argue it faces a threat of similar action.

Legal Patchwork

Courts have reached differing conclusions on whether sports event contracts fall exclusively under federal commodities law or remain subject to state gambling regulation.

The question could ultimately be resolved by the US Supreme Court. New Jersey last week petitioned the court to consider whether federal commodities law prevents states from regulating sports event contracts offered through CFTC-regulated exchanges.

Stacie Stern, Underdog senior vice president of government affairs and partnerships, told SBC Americas she hopes the Supreme Court will settle the matter.

“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,” she added.

With billions of dollars in handle on the line during football season, Underdog’s multi-state offensive could finally force federal courts to draw a definitive boundary between commodities trading and sports betting.