Underdog seeks court order blocking Connecticut sports contract oversight

Underdog asks federal court to bar Connecticut from policing sports contracts

When Connecticut's Department of Consumer Protection sent cease-and-desist orders to nine platforms in September, most of them went quiet. Underdog filed a lawsuit.

The 39-page complaint, filed in the U.S. District Court for the District of Connecticut, asks for a declaratory judgment that Connecticut cannot apply its state gaming regulations to event contracts traded on federally designated contract markets, and a permanent injunction blocking the state from trying. Attorney General William Tong and the Department of Consumer Protection are named as defendants. The core argument is one the industry has been building toward for two years: that the Commodity Futures Trading Commission holds sole regulatory authority over these instruments, and that state gaming law simply has no jurisdiction to reach them.

Connecticut's position is not unreasonable on its own terms. State officials argue the platforms allow users under twenty-one to participate, permit people on self-exclusion lists to trade, and accept contracts on in-state college teams — all of which violate Connecticut's gaming rules. The DCP also ordered platforms to halt advertising and allow Connecticut users to withdraw existing funds. Whether those concerns are legitimate policy objections or jurisdictional overreach dressed as consumer protection is exactly the question the federal court will now have to answer.

Robinhood and the CFTC itself have filed separately to block Connecticut's enforcement. That the CFTC is in federal court defending preemption while simultaneously refusing to issue final rules on event contracts is a contradiction the agency has not resolved. Every month of rulemaking silence makes the preemption argument harder to sustain in front of a judge who wants to know what, precisely, the federal government has decided.

The consensus read here is that Underdog's preemption argument is strong and that Connecticut eventually loses. I think that framing is premature. The Ninth Circuit's ruling in the tribal case — where Judge Margaret McKeown's panel found that Kalshi's sports contracts were plausibly "an act of placing a bet or wager" rather than a federally regulated derivative — handed every state regulator a template. Connecticut's lawyers will read that opinion. If a federal appellate court found the derivative classification contestable, a district court in Connecticut is not bound to accept it as settled. Underdog's case may be stronger on preemption doctrine than on the underlying classification question, and those are not the same argument.

I am adjusting for my own tendency to find the downside scenario. Even accounting for that, the classification risk created by the Ninth Circuit ruling is real and is not priced into the market's general confidence that federal preemption forecloses state action.

Montana agreed not to pursue enforcement against Kalshi while the company seeks en banc review of the Ninth Circuit decision. That agreement buys time but does not resolve anything. The Ninth Circuit opinion stands unless the full court takes the case, and there is no basis in the public record to assume it will.