Sports gaming firm Underdog has sued Connecticut officials in federal court to stop the state from treating its sports event contracts as illegal gambling, extending a nationwide legal fight over prediction markets into a sixth jurisdiction and deepening a conflict between state gambling regulators and federally licensed trading platforms.
The lawsuit, filed Tuesday in federal court, argues that Underdog operates a federally regulated designated contract market, or DCM, and that its contracts therefore fall under the exclusive jurisdiction of the Commodity Futures Trading Commission. Underdog contends that Connecticut cannot separately regulate the products under state gambling laws, and that any attempt to do so is preempted by the Commodity Exchange Act.
Clash follows cease-and-desist orders against nine platforms
The filing came roughly a week after the Connecticut Department of Consumer Protection issued cease-and-desist orders to nine prediction market platforms, including Underdog, Polymarket, Coinbase, Crypto.com and Robinhood. The state ordered the companies to stop offering sports event contracts to Connecticut residents without the licenses required of sports betting operators.
“Our laws are clear: sports betting may only be offered by legal, licensed sportsbooks that adhere to our regulations and technical standards,” DCP Commissioner Bryan Cafferelli said when the orders were announced.
Underdog is seeking declaratory and injunctive relief that would bar state officials from enforcing Connecticut’s gambling rules against its sports event contracts. The complaint argues that the Commodity Exchange Act gives the CFTC exclusive jurisdiction over trading conducted on designated contract markets, making state enforcement actions “meritless” and preempted because they conflict with the federal regulatory framework.
Connecticut has already taken the same position against Kalshi. In August, the state sued the CFTC-regulated exchange, asking a court to stop it from offering sports event contracts without a state wagering license. State officials argued that federal regulation does not exempt sports contracts from Connecticut’s gambling and consumer protection laws, while Kalshi has maintained that its status as a CFTC-regulated exchange places its event contracts under federal commodities law.
A six-state legal strategy
Connecticut is not the first state Underdog has challenged. Earlier in September, the company sued officials in Ohio, Massachusetts, Wisconsin, New Mexico and Washington, seeking court protection from state enforcement actions targeting its sports markets. The Connecticut complaint extends the same legal strategy into another jurisdiction where regulators consider the products a form of sports wagering.
Other prediction market operators have pursued similar cases as state enforcement has spread. Novig, another CFTC-regulated operator, sued Wisconsin officials in August after the state sought to apply its gambling laws to sports event contracts, arguing that federal commodities law preempts Wisconsin statutes when applied to contracts traded on its designated contract market.
The federal government has weighed in on the industry’s side. In April, the CFTC and the Department of Justice sued Connecticut, Illinois and Arizona, arguing that state enforcement against federally registered prediction markets interfered with federal authority under the Commodity Exchange Act.
Courts remain split
Despite the growing number of lawsuits, courts have reached different conclusions over how far CFTC jurisdiction extends. A New York federal judge in July denied Kalshi’s request for a preliminary injunction against state enforcement, finding the company had not shown at that stage that the Commodity Exchange Act was likely to prevent New York from applying its gambling laws to sports event contracts.
The dispute grew more complicated on August 28, when the Ninth U.S. Circuit Court of Appeals ruled against Kalshi in its fight with Nevada gaming regulators. A unanimous three-judge panel found that Kalshi had not shown federal commodities law was likely to preempt Nevada’s gambling rules for the sports contracts at issue, concluding at the preliminary stage that the products were likely sports bets rather than swaps covered by the CFTC’s exclusive jurisdiction.
“The CFTC is not a national gambling regulator,” the panel wrote, in a line that has since been cited by state regulators across the country. The Ninth Circuit ruling, however, conflicts with decisions elsewhere, and the circuit split increases the likelihood that the question of whether sports event contracts are commodities or bets ultimately lands before the Supreme Court.
For Underdog, the Connecticut lawsuit is a defensive necessity. Each cease-and-desist order that goes unanswered chips away at the company’s addressable market, and the firm has evidently decided that litigation is cheaper than exiting states one by one. The company’s position is straightforward: it holds a DCM registration from the CFTC, its contracts are traded on a federally supervised market, and a patchwork of state gambling regimes cannot override that federal charter.
What comes next
The Connecticut case will likely track the pattern established in the other five states: an initial round of briefing on preemption, followed by requests for preliminary injunctions from whichever side is seeking to preserve or disrupt the status quo. Given the split between the Ninth Circuit and other courts that have been more sympathetic to the federal preemption argument, legal observers expect the sports event contract question to remain unresolved for months, if not years.
In the meantime, the nine platforms that received Connecticut’s orders face a choice between compliance, withdrawal from the state, or the courtroom route Underdog has chosen. With Polymarket, Coinbase, Crypto.com and Robinhood also named in the state’s orders, additional federal lawsuits remain a strong possibility as the industry coordinates its defense of the prediction market model.
For crypto-native prediction markets, the stakes extend beyond sports. The same preemption arguments that protect sports event contracts also underpin election markets, economic indicator contracts and other politically sensitive offerings. A definitive ruling against the platforms in Connecticut or elsewhere could embolden other states to regulate prediction markets as gambling, while a victory would cement the CFTC as the industry’s primary regulator nationwide.
the CEA preemption argument is the whole ballgame. if a DCM gets exclusive CFTC jurisdiction over its contracts, state gambling law basically has nowhere to stand
Cafferelli saying betting may only come from licensed sportsbooks skips over the fact Underdog holds a federal DCM license. Sixth jurisdiction fighting this exact fight now.
preemption is the ballgame until a judge decides sports contracts are different because the underlying is an event, not a commodity. nobody knows how that lands yet
the event-not-commodity angle is the whole case tho. if a judge buys that sports contracts are different, preemption gets narrow real fast
connecticut hit nine platforms at once, polymarket and coinbase included, and underdog is the one firing back in federal court first. on brand honestly
six states now and counting. at some point the courts have to settle whether the CEA actually preempts state gambling law here
connecticut sent cease and desists to NINE platforms at once lol. robinhood and coinbase aint pulling out of the state over this, they will litigate
six lawsuits or just this one? either way each ruling compounds. one bad precedent for the states and the whole licensing wall comes down at once
underdog filing first in federal court matters because each ruling compounds. one circuit split on CEA preemption and this is at the supreme court before 2028
supreme court before 2028 feels fast but the nj and nevada filings already disagree on the core preemption question so maybe not crazy
the circuit split point is underrated. nj and nevada already disagree on the preemption question so connecticut picking a fight just accelerates the scotus timeline
nj and nevada already disagreeing means scotus takes it eventually. connecticut just volunteered to pay for the expedited timeline
scotus getting force fed preemption disputes one state at a time is genuinely funny. connecticut could have waited a year and read the nj ruling for free
sixth jurisdiction and every state leaning on the same Cafferelli licensing line. all it takes is one federal judge actually ruling on CEA preemption and this whole row of dominoes tips the same direction
agreed, and underdog picking federal court first means they think the CEA argument is strong enough to bet the whole legal budget on it
The preemption argument is stronger than people think. These are CFTC-licensed DCM contracts, that is not a technicality
the courts dont have to settle it though. states can keep burning legal fees until one side folds, and kalshi showed suing back works faster than geofencing
kalshi suing back did work faster, and now every state regulator gets to watch connecticut eat the legal bill for the test case. efficient honestly
six states leaning on the same cafferelli licensing line. one adverse ruling in connecticut and nine cease and desists look silly overnight
nine cease and desists issued in one day and one lawsuit back. if the DCM preemption holds the other eight platforms just got their legal strategy written for free
DCM license held for years and Connecticut still calls it illegal gambling. the discovery phase alone should be fun for the state
underdog going straight to federal court instead of quietly geofencing like the others says a lot. if the CEA preempts here the other eight cease and desists start looking very shaky
underdog arguing a CFTC designated contract market sits beyond state reach is the same argument kalshi is running in nevada and nj. whichever district rules first sets the price on all nine cease and desists
cafferelli saying only licensed sportsbooks may offer betting skips that underdog holds a CFTC designated contract market license. the whole fight is over which license wins
which license wins is the entire case in one line. state gambling law vs a federal dcm charter shouldnt even be close on paper