Underdog has sued Connecticut officials in federal court to stop the state from classifying its sports-event contracts as illegal gambling, opening another front in the fast-growing legal conflict between prediction markets and state sports-betting regulators.
The sports gaming company filed its complaint Tuesday after the Connecticut Department of Consumer Protection issued cease-and-desist orders to nine prediction-market platforms last week, including Underdog. The company is seeking declaratory and injunctive relief that would allow it to continue offering its contracts in Connecticut while the dispute is litigated.
Underdog argues that its market operates as a federally regulated designated contract market and that the Commodity Futures Trading Commission has exclusive authority over trading conducted on such venues. Its complaint says Connecticut enforcement would conflict with the Commodity Exchange Act, the federal law governing U.S. derivatives markets.
The case places Connecticut’s sports-betting rules directly against Underdog’s claim that event contracts can be regulated as federally overseen financial products. The outcome could affect whether platforms can offer contracts tied to sporting results in states that view those products as unlicensed gambling.
Connecticut targets sports-event contracts
Connecticut’s Department of Consumer Protection has taken the position that sports betting may be offered only by licensed sportsbooks that comply with the state’s gambling rules and technical requirements.
Department Commissioner Bryan Cafferelli said the state considers sports-event contracts offered through prediction-market platforms to fall within Connecticut’s sports-betting restrictions. The cease-and-desist orders were directed at nine platforms, though the supplied materials did not identify every recipient.
Connecticut has already moved against another major operator in the sector. The state sued Kalshi last month in an effort to block the platform from offering sports-event contracts, extending an existing dispute over whether those contracts belong under federal commodities regulation or state gambling law.
The enforcement campaign reflects a practical concern for state regulators: sports contracts have become a substantial part of activity on platforms originally associated with markets on elections, economic data and other future events. Court records cited in the supplied materials indicate that sports bets accounted for roughly 80% to 90% of trading volume on targeted platforms at the beginning of the year.
That concentration gives states a stronger basis for arguing that the products resemble sports wagering in everyday use, regardless of how the contracts are structured or cleared. Prediction-market operators, meanwhile, have argued that a contract paying out based on a publicly verifiable event should be treated as a derivatives product when listed on a federally regulated market.
Underdog expands its court campaign
The Connecticut complaint is part of a wider litigation strategy by Underdog. Earlier this month, the company filed similar federal lawsuits against officials in Ohio, Massachusetts, Wisconsin, New Mexico and Washington.
Those cases also seek to prevent state action against Underdog’s sports-event contracts. Each suit raises the same central legal question: whether federal commodities rules preempt state gambling laws when an operator says its products trade through a designated contract market.
More than a dozen states have taken enforcement action or filed lawsuits involving sports-event contracts offered through prediction-market platforms, according to the supplied materials. More than 40 states treat digital event wagers as unlawful gambling rather than conventional financial trades.
The state-by-state approach has left operators facing different rules depending on where customers live. A platform may argue that it is regulated under federal market rules, yet confront cease-and-desist orders, licensing demands or litigation from a state that considers the same product a wager on sports.
Underdog’s decision to challenge several states in federal court suggests the company is seeking early rulings that could establish limits on state enforcement. A favorable ruling would give federally regulated prediction-market operators a stronger argument against state sports-betting restrictions. A ruling for Connecticut could reinforce the ability of states to apply gambling laws based on the underlying event being traded.
Courts have not settled the federal-state divide
Federal courts have yet to deliver a uniform answer. The supplied materials say the U.S. Court of Appeals for the Third Circuit recently halted regional claims against one betting site, while the Ninth Circuit allowed a different state’s lawsuit to proceed.
Those diverging outcomes leave the industry without a clear national standard and increase the possibility that the issue could eventually reach the U.S. Supreme Court. Until then, litigation will likely turn on the wording of individual state laws, the federal status of each platform and the precise form of the event contracts involved.
Connecticut Attorney General William Tong has argued that state consumer-protection laws must apply to these platforms, citing concerns about access by minors and gambling addiction. Governor Ned Lamont has also issued subpoenas to 15 media companies as part of an inquiry into advertising arrangements with websites targeted by the state, according to the supplied materials.
The CFTC has been considering how far event-contract markets should extend. In June, Chairman Selig proposed federal guidelines that would permit some outcome-based contracts while barring contracts tied to war, terrorism and political assassinations. The proposal illustrates the difficult line federal regulators are being asked to draw: allowing trading on certain real-world events while limiting contracts viewed as contrary to the public interest.
Underdog’s legal fight arrives during a major deal
Underdog’s legal expansion comes as the company attracts substantial corporate interest. U.K.-based IG Group announced in July that it would acquire Underdog for as much as $1.3 billion.
Underdog also raised $70 million in a Series C financing round in March 2025 at a $1.23 billion valuation, according to the supplied materials. Those figures show the commercial stakes surrounding companies that combine sports-focused products with event-contract trading.
For Connecticut, the immediate issue is whether Underdog can continue operating while the court considers its request for relief. For the company, the suit is a test of whether federal derivatives oversight can shield sports-event contracts from state gambling enforcement. The ruling could shape how prediction-market platforms design, market and geographically restrict sports products in states that have chosen tightly licensed sportsbook systems.
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