Key points

  • Underdog filed a federal lawsuit seeking declaratory and injunctive relief after Connecticut ordered nine prediction-market operators to stop offering sports contracts.
  • The company argues its federally regulated exchange falls under exclusive CFTC jurisdiction and that the Commodity Exchange Act preempts state enforcement.
  • Connecticut maintains that sports wagers require state licensing and consumer safeguards; the court has not yet ruled on Underdog's claims.

Underdog has sued Connecticut officials in federal court, asking a judge to stop the state from treating sports event contracts offered through its exchange as illegal gambling. The complaint, filed on September 15, follows cease-and-desist orders issued by Connecticut's Department of Consumer Protection to nine prediction-market platforms. The lawsuit adds another venue to a widening national dispute over whether federally regulated event contracts can also be restricted under state gaming laws.

Underdog claims federal law controls

Underdog is seeking declaratory and injunctive relief. According to The Block's report on the filing, the company argues that the Commodity Exchange Act gives the Commodity Futures Trading Commission exclusive authority over contracts listed on a registered designated contract market. On that theory, Connecticut's attempt to apply its sports-wagering rules is preempted by federal law. Those are the company's legal claims, not findings by the court, and no ruling has been issued.

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Connecticut frames the products as sports betting

Connecticut announced its enforcement action the previous week, saying sports wagering in the state may be offered only through licensed sportsbooks operating under its standards. The orders named Underdog alongside Polymarket, Coinbase, Crypto.com, Robinhood and four other companies. State officials alleged that prediction-market products could bypass safeguards applied to licensed operators, including age limits and controls for people who have placed themselves on gambling self-exclusion lists. The companies have not all taken the same legal or operational position.

The exchange registration is central

Underdog announced in March that it had acquired Aristotle Exchange DCM and Aristotle Exchange DCO, entities registered with the CFTC as a designated contract market and derivatives clearing organization. That structure lets Underdog operate its own federally regulated exchange rather than only provide access to third-party venues. The Connecticut case turns on how far that federal registration reaches when contracts are tied to sports outcomes, an area states traditionally regulate through gambling law.

Courts have not produced a uniform answer

The dispute arrives amid conflicting judicial decisions. A September 2 legal review by DLA Piper said 19 states were then involved in proceedings related to prediction markets. It described a split between appellate courts over whether sports event contracts fall within the federal framework in a way that displaces state authority. The firm also noted a pending CFTC rulemaking that could define gaming contracts more formally. That unsettled landscape makes the Connecticut filing significant, but it does not guarantee Underdog an injunction.

What the case could change

The immediate stakes are practical for platforms and Connecticut users. If Underdog obtains an injunction, it may continue offering the disputed contracts while the court considers the merits. If the state prevails, the company could have to remove sports markets, seek state authorization or change how its products are distributed locally. Underdog also filed related challenges against Ohio, Massachusetts, Wisconsin, New Mexico and Washington on September 8, according to The Block, showing that the company is pursuing a broader federal-preemption strategy.

The next step is judicial review

Connecticut will have an opportunity to answer the complaint, and the court will need to assess both jurisdiction and the request for emergency relief before any lasting result. The key distinction for readers is between regulation and legality: CFTC registration confirms a federal regulatory status, but the scope of state power over sports-linked contracts remains contested. Until the judge acts, Connecticut's allegations and Underdog's preemption argument should be treated as opposing positions in active litigation rather than a settled rule for the prediction-market industry.

Sources

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