Underdog has initiated legal action against five states in federal court, seeking injunctions to protect its sports prediction markets from potential shutdowns. This lawsuit follows the company's decision to relinquish its Daily Fantasy Sports (DFS) licenses in seven states last week as it fully commits to prediction markets.
On September 8, the fantasy sports and prediction markets operator filed suits against Massachusetts, New Mexico, Ohio, Washington, and Wisconsin. These states are currently involved in legal disputes with other prediction market operators as well as the Commodity Futures Trading Commission (CFTC).
Underdog's legal strategy is grounded in the belief that these states might pursue enforcement actions against it, similar to actions taken against other prediction market firms. The company is seeking a permanent injunction to prevent the states from applying their gambling laws to its operations, along with court declarations affirming that such enforcement would be unlawful.
Stacie Stern, Underdog's senior vice president of government affairs and partnerships, stated, "We’re licensed by the federal government to offer markets, and we take our responsibilities as a federal exchange seriously and strictly comply with all regulations. Do we believe we are right on the law? Yes. Do we accept that these state gaming boards believe they are right on the law? Yes.
"We’ve worked with them, we respect them, and we didn’t want to sue, but sometimes it’s the only way to resolve a dispute. 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."
Underdog's filings highlight the legal battles faced by other prediction markets, noting actions against competitors like Kalshi, which have drawn scrutiny from state regulators. For instance, the Massachusetts complaint mentions that the state's attorney general has already enacted enforcement measures against Kalshi, resulting in a preliminary injunction barring the company from offering sports-related event contracts. In Ohio, the filing notes attempts by the Ohio Casino Control Commission to penalize Kalshi with a $5 million fine due to its event contracts.
The lawsuit from Wisconsin acknowledges enforcement actions have already been taken against several prediction market operators, including Kalshi and others. Underdog claims these state actions present a significant risk to its own operations.
Having expanded into prediction markets in September 2025 through a partnership with Crypto.com, Underdog has focused on this segment over the past year, including letting go of its remaining state sports betting licenses. The company acquired Aristotle Exchange, a CFTC-registered designated contract market, and has been registered with the National Futures Association as a futures commission merchant. This status allows it to operate its own prediction markets while also processing customer orders for event contracts traded on other platforms.
In late July, Underdog announced an agreement to be acquired by UK-based fintech firm IG Group in a deal valued at approximately $1.1 billion. Subsequently, IG Group projected that prediction markets would increase their share of Underdog's total handle from 14% in 2025 to 46% in 2026, eventually reaching 99%.
While historically, litigation surrounding sports prediction markets has often involved states challenging Kalshi or the CFTC, Underdog stands out as a significant player taking legal action against the states. Recently, Novig, a former betting exchange turned prediction market operator, filed a lawsuit against five similar states, including Massachusetts and Washington.
Underdog’s founder and CEO Jeremy Levine indicated that the company has faced pressures from states, including a December notice from the Arizona Department of Gaming, which sought to revoke Underdog's fantasy sports license due to its partnership with Crypto.com. Three days before filing its lawsuits, Levine announced on social media that Underdog would stop offering its DFS Drafts product on September 10 in seven states: Maryland, Massachusetts, Michigan, Mississippi, New Jersey, Ohio, and Pennsylvania. He claimed that state regulators indicated that if the company offered products licensed by the CFTC, it could not also provide fantasy sports in those regions.
Despite its challenges, Underdog plans to continue offering its Draft fantasy contests in approximately 35 U.S. jurisdictions. The company currently provides event contracts in 46 states, excluding only Arizona, Michigan, Nevada, and New York from its prediction markets.
Stern concluded, "For Underdog, the product speaks for itself. We’ve proven we can build the best fan experience and delivered it responsibly under every legal regime imaginable. A consistent, national framework is what’s best for customers, but we’ll keep growing either way. To the states we’re litigating with: we want to keep working together and keep the lines of dialogue open. And regardless of the outcome, we will always take care of our customers. We look forward to the Supreme Court resolving this. Whatever the result, we’ll keep offering sports fans the best products in the industry and in a responsible way."
