Ninth Circuit's tribal ruling reshapes state enforcement calculus

A federal appellate court has already told Kalshi its sports contracts are illegal gambling on tribal lands. Connecticut handed the same logic to nine platforms simultaneously. Now Underdog has walked into the U.S. District Court for the District of Connecticut and asked a federal judge to say that none of it applies to them — that the CFTC's authority over designated contract markets forecloses every state regulator in the country from touching their products.

The 39-page complaint is not a desperate move. It is a calculated one, and the calculation starts with a real legal theory. Underdog operates a federally regulated DCM. The Commodity Exchange Act grants the CFTC exclusive jurisdiction over contracts traded on those markets, including the power to prohibit event contracts it deems contrary to the public interest. Underdog's argument is that Connecticut has not been handed that power, and that William Tong's cease-and-desist order is not regulation — it is substitution of state judgment for federal.

Connecticut's counterargument has some weight too. The DCP's concern is not abstract. Their cease-and-desist letters alleged that these platforms let under-21 users trade, accepted users who had self-excluded from gambling, and took positions on in-state college teams — all violations of state gaming law as Connecticut applies it. That is not a preemption argument. That is a conduct argument. The distinction matters because a court can accept CFTC preemption in principle and still ask whether the platform's actual behavior forfeited the protection.

Robinhood is running a parallel action in the same federal jurisdiction. Underdog is doing this alone, and there is something strategically cleaner about that. A standalone DCM operator arguing federal preemption is a more legible case than a multi-product financial platform doing the same thing. If the theory works for anyone in this cohort, it works for Underdog first.

The Ninth Circuit's tribal ruling complicates the background in a way the Connecticut litigation has not fully absorbed. That court found that event contracts, whatever their federal regulatory status, constitute illegal sports betting under IGRA on tribal gaming territory. The mechanism was different — IGRA operates on a different legal track than state gaming law — but the underlying logic that federal DCM status does not automatically immunize a platform was the same. Underdog's complaint needs to distinguish that holding, and doing so in a Second Circuit district court is possible. Whether the judge reads the Ninth Circuit as persuasive authority is a different problem.

Montana's parallel situation clarifies what these platforms actually want. Kalshi dropped its Montana lawsuit in exchange for a standstill — no enforcement until the Ninth Circuit finishes its rehearing process, with thirty days' written notice before Montana can act again. That is not a win on the merits. It is a pause bought with procedural concessions. Underdog is not asking for a pause. They want a permanent injunction and a declaratory judgment. The ambition level is higher, the legal exposure is higher, and the timeline to resolution is longer.

I've watched preemption arguments move through federal courts before. The ones that fail tend to fail not on the doctrine but on the conduct record — a regulator who can show the platform did something a federal rule also prohibits tends to survive the motion to dismiss. Connecticut's under-21 allegation is the sentence Underdog's lawyers will spend the most time on, and the complaint's answer to it will determine how far this goes before it gets complicated.