Underdog bets its future on federal preemption over state gambling laws

Stacie Stern did not want to be in court. That is worth taking seriously, because the alternative Underdog chose — surrendering daily fantasy sports licences in seven states, then filing federal suits in five more — is the kind of decision that costs a company its floor before it bets on the ceiling.

The surrender came first. Massachusetts, Maryland, Michigan, Mississippi, New Jersey, Pennsylvania, Ohio: seven states, seven licences handed back, DFS entries closed after NFL kickoff. Jeremy Levine, Underdog's chief executive, made the call publicly and without much softening. What remained was the prediction market business, and for that Underdog needed the courts to hold.

The five lawsuits — Ohio, Massachusetts, Wisconsin, New Mexico, Washington — are not a scatter pattern. Each state is already in active litigation with Kalshi, the CFTC, or both. Underdog filed into existing battlefields, which is a legal strategy and also a message. The company is arguing that CFTC designation as a contract market confers exclusive federal jurisdiction, and that state gambling statutes applied to federally regulated derivatives violate the Supremacy Clause. This is the same argument Kalshi has been making. It has lost in Utah twice, lost in Connecticut, and lost at the 10th Circuit on the injunction question. The 10th Circuit was direct: Kalshi had not shown likelihood of success on appeal, irreparable harm, or that the public interest weighed in its favour.

The consensus read is that federal preemption is losing. I don't think that's where this lands, and here is the mechanism: the cases reaching circuit courts now are preliminary injunction denials, not merits rulings. A court that declines to freeze enforcement while a case proceeds is not ruling that the underlying legal theory fails — it is ruling that the bar for emergency relief wasn't cleared. Those are different standards. The Supreme Court's decision to take the Kalshi case changes the terrain entirely, because a merits ruling from the court ends the patchwork. Underdog filed five suits knowing that the real resolution is not in any of those five district courts. It is in Washington.

What Underdog has done that Kalshi has not is make the trade explicit. You cannot hold DFS licences and simultaneously argue that states have no jurisdiction over your products. The position was incoherent, and Levine resolved it cleanly if painfully. The company now holds a single federal theory and has stripped away the contradiction that was always available to opposing counsel.

In Illinois, Republican state representative Travis Weaver introduced a bill to remove the exchange wager tax and the $15 million licensing fee that Governor Pritzker signed into law earlier this year. Weaver told CDC Gaming the taxes are in effect and generating no revenue — which is the condition that makes a tax easy to defend politically and hard to remove. He filed now to build momentum before that calculus hardens. Whether the veto session takes it up or it waits for January, the bill signals that the legislative coalition behind state-level prediction market taxation is not unanimous even in states that passed it.