Sports gaming firm Underdog has sued Connecticut officials in federal court to stop the state from treating its sports event contracts as illegal gambling, extending its legal fight against state regulators to a sixth jurisdiction.
According to Underdog’s lawsuit filed Tuesday, the company operates a federally regulated designated contract market, or DCM, and its contracts therefore fall under the Commodity Futures Trading Commission’s jurisdiction. Underdog argued that Connecticut cannot separately regulate the products under state gambling laws.
NEW: Underdog has filed a federal lawsuit against Connecticut in response to the State’s demand that the prediction market cease and desist from offering sports-event contracts to persons located within the state. pic.twitter.com/UzT7wR3ajV
— Daniel Wallach (@WALLACHLEGAL) September 16, 2026
The company is seeking declaratory and injunctive relief that would prevent state officials from enforcing Connecticut’s gambling rules against its sports event contracts. Its complaint argues that the Commodity Exchange Act gives the CFTC “exclusive jurisdiction” over trading conducted on designated contract markets, making any state enforcement action “meritless.”
Underdog said Connecticut’s attempt to stop the contracts is preempted because it conflicts with the federal framework established under the Commodity Exchange Act.
Underdog challenges Connecticut crackdown on event contracts
The federal lawsuit came after the Connecticut Department of Consumer Protection last week issued cease-and-desist orders to nine prediction market platforms, including Underdog, Polymarket, Coinbase, Crypto.com and Robinhood.
Connecticut maintains that contracts tied to sporting events fall under its gambling rules when offered to residents without the licenses required for sports betting operators.
“Our laws are clear: sports betting may only be offered by legal, licensed sportsbooks that adhere to our regulations and technical standards,” DCP Commissioner Bryan Cafferelli said when the orders were announced.
The state has already taken the same position against Kalshi. Connecticut sued Kalshi in August, asking a court to stop the federally regulated platform from offering sports event contracts without a state wagering license. As crypto.news previously reported, state officials argued that federal regulation does not exempt sports contracts from Connecticut’s gambling and consumer protection laws.
Kalshi has disputed that position, maintaining that its status as a CFTC-regulated exchange places its event contracts under federal commodities law. Connecticut’s case followed an earlier enforcement dispute that began when state regulators ordered Kalshi, Robinhood and Crypto.com to stop offering or promoting sports event contracts in December 2025.
The CFTC has taken its own position against Connecticut. In April, the regulator and the Department of Justice sued Connecticut, Illinois and Arizona, arguing that state enforcement against federally registered prediction markets interfered with federal authority under the Commodity Exchange Act.
Underdog takes the same argument to six states
Connecticut is not the first state Underdog has challenged over sports event contracts.
Earlier in September, the company sued officials in Ohio, Massachusetts, Wisconsin, New Mexico and Washington, seeking protection from state enforcement actions targeting its sports markets. The Connecticut complaint extends the same legal strategy into another jurisdiction where regulators consider the products a form of sports wagering.
Other prediction market operators have pursued similar cases as state enforcement has spread. Novig, another CFTC-regulated prediction market operator, sued Wisconsin officials in August after the state sought to apply its gambling laws to sports event contracts. Novig argued that federal commodities law preempts Wisconsin statutes when applied to contracts traded on its designated contract market.
Kalshi has used the same federal preemption argument in several states, but courts have reached different conclusions over how far CFTC jurisdiction extends.
A New York federal judge in July denied Kalshi’s request for a preliminary injunction against state enforcement. The court found that the company had not shown at that stage that the Commodity Exchange Act was likely to prevent New York from applying its gambling laws to sports event contracts.
Federal courts remain split over sports prediction markets
The legal dispute became more complicated on Aug. 28 when the Ninth U.S. Circuit Court of Appeals ruled against Kalshi in its fight with Nevada gaming regulators.
A unanimous three-judge panel found that Kalshi had not shown that federal commodities law was likely to preempt Nevada’s gambling rules for the sports contracts at issue. The court concluded at the preliminary stage that the products were likely sports bets rather than swaps covered by the CFTC’s exclusive jurisdiction.
“The CFTC is not a national gambling regulator,” Circuit Judge Ryan Nelson wrote.
The decision allowed Nevada to enforce its gaming laws against Kalshi while the underlying litigation continues. It did not produce a final ruling on every dispute involving sports event contracts or decide whether all prediction market products fall outside federal preemption.
A different result came from the Third Circuit in Kalshi’s dispute with New Jersey. A divided panel in April kept preliminary protection in place for Kalshi after finding that the company had demonstrated a reasonable likelihood of succeeding on its argument that its sports event contracts qualify as swaps under the Commodity Exchange Act.
The conflicting appellate decisions have moved the jurisdictional dispute toward the U.S. Supreme Court. New Jersey petitioned the Supreme Court on Sept. 2, asking the justices to decide whether federal derivatives law prevents states from regulating sports contracts offered through CFTC-registered prediction markets.
The legal fights have continued to multiply while prediction markets expand their sports offerings. By early September, 38 active prediction market cases were pending across 21 states, according to figures cited by Casino.org, with state enforcement underway in 10 jurisdictions.
Underdog faces legal fight during $1.3 billion acquisition
Underdog’s regulatory challenges are unfolding while the company is in the process of being acquired by UK-based IG Group.
IG Group announced in July that it would acquire Underdog for up to $1.3 billion, giving the financial trading company a larger position in the U.S. sports gaming and prediction market sector. The deal followed Underdog’s $70 million Series C funding round in March 2025, when the company was valued at $1.23 billion.
Underdog remains much smaller than Kalshi and Polymarket in the prediction market business, where sports contracts have become a major source of trading activity.
Prediction markets generated a record $50.59 billion in combined monthly trading volume in July across Kalshi, Polymarket and Polymarket US, with Kalshi accounting for $37.7 billion. Polymarket’s international and U.S. platforms generated a combined $12.9 billion during the month.
Connecticut remains part of the state enforcement campaign. Its lawsuit against Kalshi in August sought an injunction preventing the platform from offering sports event contracts without a state license, while the latest cease-and-desist orders extended the state’s action to Underdog and eight other prediction market platforms.
