Underdog has filed a federal lawsuit against Connecticut officials, asking the court to stop the state from enforcing its gambling laws against the company’s sports event contracts. The suit, filed on 16 September, came one week after the Connecticut Department of Consumer Protection (DCP) ordered Underdog and eight other platforms to stop offering sports contracts to residents.
The complaint names Attorney General William Tong and the DCP, according to SBC Americas. Underdog is seeking declaratory and injunctive relief that would let it keep operating in the state while the case is heard.
The preemption argument
Underdog runs its prediction markets through Underdog Predict, a subsidiary that operates as a Designated Contract Market (DCM) regulated by the Commodity Futures Trading Commission (CFTC). The company argues that the CFTC has exclusive jurisdiction over contracts listed on a DCM, and that Connecticut’s enforcement conflicts with the federal framework set by the Commodity Exchange Act (CEA) and is therefore preempted.
Under that reading, a contract on the result of a sporting event is a financial product governed by federal law, outside the reach of state gambling rules. Stacie Stern, Underdog’s SVP of Government Affairs, said the company believes it is “right on the law.”
What Connecticut ordered
The DCP issued cease-and-desist orders on 9 September to nine platforms: Underdog, Polymarket, Coinbase, Crypto.com, Robinhood, ProphetX, Novig, Webull and Gemini. As EpicWins reported, the orders require the companies to stop advertising and promoting sports event contracts to Connecticut residents and to let customers withdraw their funds.
Kristofer Gilman, the DCP’s Director of Gaming, ordered Underdog to “immediately end all advertising, promotion, and operation” of its sports contracts in the state.
Connecticut limits sports betting to its licensed sportsbooks. The DCP has named age verification, access by self-excluded players and contracts on collegiate sporting events as its main concerns. The department has also issued around 30 subpoenas to payment processors, technology providers and media organisations as part of its investigation.
“Our laws are clear: sports betting may only be offered by legal, licensed sportsbooks that adhere to our regulations,” said DCP Commissioner Bryan Cafferelli.
Governor Ned Lamont has said prediction markets operate outside the state’s consumer protection framework. Tong dismissed Underdog’s case.
“This is nothing more than the recycling of failed arguments from other prediction markets,” said Attorney General William Tong.
The Kalshi ruling
The preemption argument has already lost one round in Connecticut. In August, federal judge Vernon Oliver denied Kalshi’s request for a preliminary injunction against the state. Kalshi has appealed to the Second Circuit, and the Attorney General’s office has since sued Kalshi in state court to block its sports event contracts.
Underdog is now pressing a theory that a federal judge in the same state rejected a month earlier.
Six states in one month
Connecticut is the sixth state Underdog has taken to court in September. Earlier in the month it sued Ohio, Massachusetts, Wisconsin, New Mexico and Washington, in those cases seeking injunctions before regulators had moved against it.
The filings come as volume on sports contracts climbs. The NFL’s opening weekend drove record prediction market volume, and lawmakers are now testing the question too: the Texas Senate is weighing whether prediction markets are gambling.
The litigation also runs alongside IG Group’s planned acquisition of Underdog, announced in July at a value of up to $1.3 billion.
What comes next
The court will first decide whether to grant Underdog interim relief. The Second Circuit’s decision on Kalshi’s appeal may carry more weight than either district case, since it will bind federal courts in Connecticut, New York and Vermont. Unless a court intervenes, the DCP’s orders remain in force, and the eight other platforms named in them face the same choice Underdog faced: comply, or go to court.
Source: Underdog
