Underdog drops into five new legal battles after DFS retreat

Jeremy Levine made a clean trade. Underdog Sports surrendered daily fantasy sports licences in seven states and filed federal lawsuits in five others, all within the same week. The company gave up the regulated ground it had and went looking for different ground entirely.

The five suits — filed in Ohio, Massachusetts, Wisconsin, New Mexico, and Washington — each make the same argument: that the Supremacy Clause of the U.S. Constitution prevents state gaming regulators from touching federally regulated derivatives contracts. The company is asking for permanent injunctions and declaratory judgments in each jurisdiction. It is not asking to negotiate. It is asking courts to tell states they have no authority here.

That is a harder argument to win than it looks from the outside, and the week's other news should tell Levine exactly how hard. In Iowa, U.S. District Judge Stephen Locher denied Kalshi's preliminary injunction on the same constitutional theory — that the Commodity Exchange Act pre-empts state gambling law. Locher's language was pointed: if Congress had meant to knock out state gambling statutes, it would have said so. The CEA's exclusive jurisdiction provision, in his reading, covers the CFTC's role as lead federal regulator over commodity markets, not a blanket displacement of fifty states' gambling frameworks. One sentence he wrote will appear in every brief filed against Underdog over the next eighteen months: "It is harder to conclude that Congress intended for 'event' or 'occurrence' to encompass the outcome of a sporting event."

Underdog knows this. Levine did not wake up last week thinking the legal theory was airtight. He made a business calculation: that operating in the legal middle — holding DFS licences in states that were already signalling hostility to prediction markets — was more expensive than forcing a federal resolution. Surrender the licences, file the suits, and make the constitutional question unavoidable. It is a pressure strategy dressed as a legal one.

The problem is that Kalshi tried the same strategy first and has now lost injunctive relief in multiple jurisdictions. Courts have been consistent: the preemption argument clears neither the express nor the implied bar that federal courts apply before they tell states to stand down. Underdog enters this litigation after watching Kalshi lose in Iowa, Nevada, and the Tenth Circuit, with the Utah attorney general still moving and New Mexico tribes arguing their case as Underdog filed in that same district.

Where I differ from the consensus read on this is not on the legal merits — the preemption theory is genuinely weak, and Locher's opinion is the clearest articulation yet of why. My disagreement is about what Levine actually bought with the DFS surrender. He removed the leverage states had. A DFS licence is a state permission that a state can revoke. A federal derivatives registration is not. By consolidating onto federal ground, Underdog narrowed the surface area that state regulators can reach, even if courts ultimately rule against him on preemption. That is worth something, even in a losing litigation posture.

The Illinois situation runs parallel. Representative Travis Weaver's House Bill 5811 would repeal the tiered transaction tax on exchange wagers and remove the definitional language that made prediction market contracts taxable under state sports wagering law in the first place. Weaver told reporters he filed now to build momentum before the November veto session, knowing the real vote comes in January. His concern, stated plainly, is that once the tax generates revenue, it becomes permanent regardless of its legal standing. Illinois budgeted nothing from it. The state budgeted money for the attorney general to defend it.

That last detail is the one worth holding. Illinois does not expect this tax to pay for anything. It expects it to cost something. The question is whether it costs the state more than it costs the platforms — and right now, across Iowa, Nevada, Utah, New Mexico, Massachusetts, Ohio, Wisconsin, and Washington, the answer is not obvious.