Underdog sues Connecticut after state attacks prediction markets

Underdog has filed a federal lawsuit aimed at stopping Connecticut from enforcing state gambling and sports wagering laws against the company’s sports-related prediction markets, a legal fight that could determine whether these “event contracts” are treated like sports betting or a separate, federally overseen product.

The complaint was filed on Wednesday, Sept. 16, and names Connecticut Attorney General William Tong and the Connecticut Department of Consumer Protection (DCP). Underdog is asking for a declaratory judgment that Connecticut can’t apply state gaming laws to event contracts and for a permanent injunction that would prevent the state from enforcing any gambling-related state laws against Underdog’s prediction markets. The company is also seeking to block Connecticut from regulating those products at all.

The lawsuit comes seven days after Underdog Predict was among nine companies sent a cease-and-desist letter by the DCP on Sept. 9. In that notice, DCP Director of Gaming Kristofer Gilman ordered Underdog to immediately stop advertising, promoting, and operating sports event contracts within Connecticut, and to allow Connecticut residents to withdraw their funds. Gilman warned that non-compliance could lead to civil penalties under the Connecticut Unfair Trade Practices Act and potential criminal charges under state gaming law. The DCP letter also accused other firms including Novig, Polymarket, and ProphetX of illegally offering sports-related prediction markets to Connecticut residents.

Connecticut’s actions haven’t been limited to sending cease-and-desist letters. The state has issued almost 30 subpoenas to a wide range of companies, including gaming service and data providers, media organizations, and tech giants’ app stores, as it looks to cut off prediction markets’ “support system.” Underdog argues this broader crackdown shows an “imminent threat” that the state will apply Connecticut’s gambling and sports wagering laws to its prediction markets.

Underdog, like other prediction market platforms, maintains that sports event contracts are federally authorized and fall under the exclusive jurisdiction of the Commodity Futures Trading Commission (CFTC). In the filing, Underdog’s counsel argues that Connecticut’s threatened enforcement is inconsistent with the US Constitution’s Supremacy Clause and therefore preempted. Underdog also points to the CFTC’s own federal lawsuit against Connecticut filed in April as supporting that view.

Connecticut officials have pushed back strongly. Tong said the lawsuit is “nothing more than the recycling of failed arguments from other prediction markets,” adding that “multiple courts have affirmed” sports event contracts are “no different than sports betting” and not “magically shielded by federal law.” The conflict is also happening alongside a separate, high-profile dispute involving Kalshi: Tong sued Kalshi in state court in late August, after federal judge Vernon Oliver denied Kalshi’s request for a preliminary injunction in the federal case (a decision Kalshi appealed to the Second Circuit). For its part, the DCP said it can’t comment on pending litigation, but its Director of Communications Kaitlyn Krasselt pointed to Judge Oliver’s decision as supporting the state’s position.

The money at stake is substantial. Data provided to SBC Americas by TickerTracker indicated Underdog did more than $204 million in notional sports event contract trading volume on its in-house Underdog Exchange between Sept. 10-16. Underdog also routes trading through multiple channels, and the operator’s own data suggested it recorded almost $600 million in total trading volume between Sept. 1-16. Underdog has argued that Connecticut’s posture exposes it to civil penalties, potential criminal liability, forced cessation of operations in Connecticut, and collateral consequences to its nationwide operations, particularly after the state’s action against Kalshi. Separately, Robinhood has filed a motion to intervene in the CFTC’s lawsuit against Connecticut, calling the state’s order an “escalating threat.”