Underdog has taken legal action against the state of Connecticut, filing a federal lawsuit on September 16 as the state intensifies its scrutiny over the prediction markets sector. The lawsuit seeks to prevent Attorney General William Tong and the Connecticut Department of Consumer Protection (DCP) from "unlawfully" exerting control over Underdog's event contracts.
In its complaint, Underdog requests a declaratory judgment asserting that Connecticut cannot impose its gaming laws on these event contracts. Additionally, the operator is pursuing a permanent injunction to stop state authorities from enforcing state gambling regulations concerning its prediction markets, as well as to block any future attempts by Connecticut to regulate their offerings.
Tong publicly criticized the lawsuit, stating, "This is nothing more than the recycling of failed arguments from other prediction markets. Multiple courts have affirmed that sports event contracts are no different than sports betting and are not magically shielded by federal law."
Underdog's filing comes just a week after its subsidiary, Underdog Predict, received a cease-and-desist letter from the DCP. The letter, sent on September 9, accused Underdog, along with Novig, Polymarket, and ProphetX, of unlawfully providing sports-related prediction markets to residents of Connecticut. The DCP ordered Underdog to halt all advertising and operations in the state and to allow local customers to withdraw their funds.
Failure to comply could lead to civil penalties under the Connecticut Unfair Trade Practices Act and potential criminal charges under state gaming laws. Along with targeting Underdog, Connecticut has expanded its enforcement by issuing nearly 30 subpoenas to various companies, including gaming service providers, media organizations, and tech companies, as part of its efforts to dismantle the infrastructure supporting prediction markets.
In its complaint, Underdog emphasized the "imminent threat" it faces from potential enforcement of Connecticut's gambling laws against its prediction markets. The company argues that these contracts fall under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC), which has historically supported this position.
"Defendants’ threat of enforcement is plainly inconsistent with Article VI, Clause 2, of the United States Constitution ('Supremacy Clause') and any enforcement efforts are therefore preempted," Underdog’s legal counsel stated. They referenced the CFTC's previous federal lawsuit against Connecticut filed in April, affirming the industry’s position.
Underdog highlighted a lawsuit from Tong against Kalshi in state court last month, which underscores what it sees as a legitimate risk of enforcement actions against them, resulting in civil penalties, potential criminal liabilities, and the forced cessation of operations in Connecticut. This lawsuit emerged following a federal judge's refusal to grant a preliminary injunction to Kalshi against the state's actions, a decision under appeal in the Second Circuit.
Kaitlyn Krasselt, Director of Communications for the DCP, declined to comment on the pending lawsuit but stated that Connecticut's position has been articulated in recent legal proceedings, referencing Judge Oliver's ruling in the Kalshi case, which she claimed supported the state’s stance.
While some companies have initiated communication with the DCP following C&D notices, Underdog has opted for a court battle, similar to its approach in other states. Robinhood has also intervened in the CFTC's lawsuit against Connecticut, asserting that the state’s actions pose an escalating threat to its operations.
In addition to the ongoing suit against Connecticut, Underdog has filed separate lawsuits in five other states, including Massachusetts, New Mexico, Ohio, Washington, and Wisconsin, seeking preemptive injunctions involving similar regulatory challenges.
Stacie Stern, Underdog’s Senior Vice President of Government Affairs and Partnerships, stated, "We believe we are right on the law," recognizing the opposing views held by states. She expressed regret over the need to sue but acknowledged that such litigation can sometimes be the only viable means to resolve disputes.
Data from TickerTracker, provided to SBC Americas, indicates that Underdog managed over $204 million in notional trading volume within its Underdog Exchange between September 10-16 alone, with a total of nearly $600 million in trading volume throughout the first half of September. Underdog's stake in the prediction markets industry is significant, leading them to defend their business rigorously.
