Illinois licensing fee sets a price on federal preemption theory

Stacie Stern said Underdog did not want to sue. She said it anyway, in five states, on the same week her company surrendered daily fantasy sports licences in seven others. The logic is straightforward: Underdog has decided that a federal preemption argument is worth more than a portfolio of state licences, and it is now asking district courts in Ohio, Massachusetts, Wisconsin, New Mexico, and Washington to agree.

The legal claim is identical in each filing. The CFTC holds exclusive jurisdiction over designated contract markets. Underdog is a federally regulated exchange. State gaming statutes cannot lawfully reach it. That argument is not new — Kalshi has been pressing a version of it through Nevada, Iowa, and the Ninth Circuit, losing at each stop. What Underdog has done is multiply the docket rather than deepen a single case, on the theory that five simultaneous filings create more surface area for a circuit split, and a circuit split is the mechanism that gets this to the Supreme Court.

Stern said the quiet part directly: "We need the U.S. Supreme Court to decide whether we'll have one, enforceable federal standard or state-by-state regulation." That is not a legal strategy dressed up as a press statement. It is a litigation roadmap. Underdog is not trying to win in Ohio. It is trying to lose in enough circuits, differently enough, that Washington has to take the case.

The Illinois situation sits in a different register but points at the same structural problem. Governor Pritzker's fiscal-year 2027 budget defined "exchange wagers" — agreements tied to sporting events offered on a prediction market — and attached a tiered transaction tax: 1.75% on the first five million wagers in a fiscal year, 3.5% after that. It also set a $15 million initial licensing fee, renewable at $1 million. Representative Travis Weaver's House Bill 5811 would remove the definition and repeal the tax entirely. Weaver's stated frustration is fiscal: the legislature budgeted no revenue from the new taxes, only cash for the attorney general to defend them.

That detail should be read carefully. Illinois priced its licensing regime at $15 million before it knew whether courts would let it collect. That is not unusual in regulatory drafting — states routinely set fees against the possibility of prevailing — but it creates a specific enforceability gap. If federal preemption holds, the $15 million fee is a nullity. If it doesn't, the fee is the cost of operating a prediction market in Illinois, which is a number most entrants cannot absorb. The fee structure does not regulate prediction markets so much as it prices them out while the legal question resolves.

Weaver's concern is that if the tax survives constitutional challenge and begins generating revenue, "it gets hard to kill it." He is right about the institutional mechanics. Revenue creates constituencies. Constituencies create resistance to repeal. His window is the veto session, six days in November and December, though he acknowledged the bill will likely wait for the full legislative session in January.

Meanwhile, ESMA issued its assessment that prediction markets present insider trading and market integrity risks "reaching new levels," citing limited identity verification as the primary vulnerability. The Van Dyke case — a U.S. soldier charged with placing wagers on a raid targeting a foreign leader — is the kind of incident that makes the ESMA language feel less like regulatory boilerplate and more like a specific institutional memory. Malta is exploring a framework. The FCA is considering whether to reform retail access rules while maintaining its binary options ban. Neither is close to resolution.

The federal preemption cases and the European authorization question are not the same problem, but they share an underlying architecture: both turn on whether a CFTC-regulated exchange can export its regulatory status into a jurisdiction that has not accepted it. In the United States, that question runs through Article VI. In the EU, it runs through MiFID II and ESMA's authorization regime. The answer in both cases depends on which regulator the relevant court or authority decides was meant to be in charge.

Underdog's five-state filing is the most aggressive version of the domestic argument made so far — more aggressive than Kalshi's, because Underdog has less to lose by burning its state licences. Whether courts read the CFTC's exclusive jurisdiction language as narrowly as Iowa did, or as broadly as Underdog needs them to, is the question every operator in this market is waiting on.