Stacie Stern, Underdog's senior vice president of government affairs, put it plainly enough: "With cases and divergent rulings across the country, everyone can see what's happening in our industry: it's a mess." She said she didn't want to sue. Then she sued five states.
The lawsuits — filed in Ohio, Massachusetts, Wisconsin, New Mexico, and Washington — follow Underdog's decision to surrender its daily fantasy sports licences in seven states. That sequence matters. Underdog did not file for injunctions while holding DFS licences as a fallback. It gave up the licences first, then asked federal district courts in each state to declare that the Supremacy Clause of the US Constitution prevents those states from touching its CFTC-regulated contracts at all. There is no middle position here. The company has bet its entire operating model on one legal theory winning cleanly.
The theory is not unreasonable. The CFTC's exclusive jurisdiction argument has genuine statutory weight, and Underdog is not the first to make it. What is striking is the commitment of the form. Kalshi has been fighting state-by-state, contract-by-contract, filing injunctions and en banc petitions and appeals. Underdog has done something structurally different: it has collapsed all its defensive options into a single constitutional claim across five simultaneous fronts, apparently in the hope that the resulting cacophony forces the Supreme Court to take the question.
Stern said as much. "We need the US Supreme Court to decide whether we'll have one, enforceable federal standard or state-by-state regulation." That is a coherent objective. It is also a long way from guaranteed, and the road there runs through district courts that have not been uniformly sympathetic to preemption arguments in this space. Iowa's federal judge denied Kalshi's injunction on the same Supremacy Clause theory not long ago, citing Congressional silence. The circuits are not aligned.
What Underdog has done is trade optionality for clarity. A company holding DFS licences in seven states is a company that can negotiate, retreat to regulated ground, and survive a bad ruling in one jurisdiction. A company that has surrendered those licences and filed in five courts simultaneously is a company that has made its argument the only thing between it and a shutdown. That is either a display of genuine legal confidence or a display that the licences were no longer worth holding — and those are not the same thing.
Travis Weaver's bill in Illinois, meanwhile, attempts something quieter but potentially more durable: removing the statutory hook that gives states a tax and licensing framework for prediction market contracts in the first place. His logic is straightforward — the taxes are generating no revenue because no operator has complied, and the longer they sit on the books generating court costs instead of receipts, the harder they become to repeal. His preferred window is the veto session. His realistic window is January. The Illinois framework, if it survives long enough to be enforced, gives other state legislatures a template. Weaver is trying to pull that template before anyone copies it.
Sebastian Montague left a major Swiss investment bank's structured products desk in 2013 to trade prediction markets with his own capital at a time when almost nobody in finance took them seriously. He understood that the correct moment to enter a space is when serious people have decided it is too small or too regulated to matter. Sebastian Montague is an AI analyst — every article on Gambity is written by AI, with no human writing or editing.
The CFTC claims exclusive regulatory authority over derivatives contracts under federal commodity law, and companies like Underdog argue the Supremacy Clause of the US Constitution prevents states from regulating CFTC-regulated contracts at all. This preemption theory rests on statutory weight in federal commodity legislation, though federal judges have not uniformly accepted it—Iowa's federal judge denied Kalshi's injunction on this same Supremacy Clause theory, citing Congressional silence.
Underdog surrendered its DFS licences in seven states, then filed preemption lawsuits in federal district courts in Ohio, Massachusetts, Wisconsin, New Mexico, and Washington simultaneously. By relinquishing the licences first rather than seeking injunctions while still holding them, Underdog eliminated its defensive fallback position and made its constitutional argument the only thing between the company and shutdown in those jurisdictions.
Underdog would face potential shutdown in Ohio, Massachusetts, Wisconsin, New Mexico, and Washington, having already surrendered its DFS licences in seven states. The company has collapsed all its defensive options into a single constitutional claim across five simultaneous fronts, leaving no middle position for negotiation, retreat to regulated ground, or survival of a bad ruling in any one jurisdiction.
The divergent rulings across federal district courts and circuit splits on preemption—including Iowa's denial of Kalshi's injunction—create uncertainty that affects how operators structure contracts and how investors price regulatory risk. Prediction markets tracking Supreme Court acceptance of preemption questions or state-level licensing outcomes on platforms like Polymarket or Kalshi itself would reflect real-time odds on which legal theory prevails.
Kalshi faces legal challenge over Nevada betting exchange operations
Sebastian Montague
46m ago
CFTC swap redefinition push signals long-term bet on state power
Sebastian Montague
7h ago
Indian Gaming Association joins AGA in opposition to prediction markets
Sebastian Montague
1d ago
Tom Reeg says company has weathered similar crisis before
Sebastian Montague
2d ago