Underdog sues five states over sports event contracts

Jason Robins stood at a Wells Fargo consumer conference and described DraftKings' prediction market business as a "huge growth story" — volume up nearly 2.5 times since July, an almost double-digit share of the broader sports market. What he did not address, at least not in the public remarks, is the legal architecture his company is now operating inside.

Missouri Attorney General Catherine Hanaway sent cease-and-desist letters to six prediction market operators — Crypto.com, Kalshi, Nova, Polymarket, Robinhood, and Underdog — ordering them to stop offering sports event contracts to Missouri customers without Gaming Commission licenses. The letters arrived against a specific backdrop: Missouri voters approved a sports wagering framework in 2024, the state launched online sports betting in December 2025, and licensed operators there pay a 10 percent tax on adjusted gross revenue and must verify that bettors are 21 or older. Hanaway's position is that prediction market operators offering sports contracts are doing the same thing without the same obligations.

The legal framing matters more than the letters themselves. Hanaway cited recent federal appellate decisions holding that sports event contracts do not qualify as swaps under the Commodity Exchange Act. That is the load-bearing wall. If sports event contracts fall outside CEA swap definitions, the federal preemption argument that prediction markets have used to resist state licensing requirements becomes significantly harder to sustain. The Supremacy Clause preempts state law where Congress has occupied the field — but Congress has to have actually occupied it. A federal appeals court ruling that these contracts are not swaps is a ruling about the scope of federal jurisdiction, and a narrower scope leaves more room for Missouri to stand.

This is where the commercial trajectory and the legal trajectory diverge in ways Robins' growth numbers do not capture. DraftKings launched its Predictions product in December 2025 and has been expanding since. But DraftKings is also a licensed sportsbook operator in Missouri. The legal exposure for DraftKings Predictions is therefore a different shape than the exposure for Kalshi or Polymarket, which do not hold state gaming licenses and have been relying on their CFTC-designated contract market status as the primary basis for federal preemption.

Hanaway said she hopes the companies will agree to operate under state gaming regulations. She acknowledged litigation is possible. That is not a concession — it is a sequencing notice. The cease-and-desist is the first move in a negotiation that has a litigation branch. How many of the six operators hold any Missouri gaming authorization is not on the public record. Whether any of them intend to apply for state licenses rather than contest the orders is equally unclear.

The standard that applies here is not one Hanaway invented. Under the Commodity Exchange Act, a designated contract market has exclusive jurisdiction over contracts that qualify as futures or swaps. The operative legal question is whether sports event contracts meet that definition — and the appellate decisions Hanaway cited suggest at least some federal courts have concluded they do not. That conclusion, if it holds, does not eliminate federal jurisdiction over these platforms entirely. It eliminates the specific preemption shield they have been carrying.