Underdog Drops Fantasy in Seven States, Then Sues Five Over Prediction Markets
Key Points
- Underdog stopped new DFS contests in Maryland, Massachusetts, Michigan, Mississippi, New Jersey, Ohio and Pennsylvania after CEO Jeremy Levine said regulators would not allow the company to retain fantasy licenses while offering CFTC regulated products.
- Three days after Levine announced the shutdown, Underdog filed federal lawsuits in Massachusetts, Ohio, Wisconsin, New Mexico and Washington seeking to block state gambling laws from being applied to its sports event contracts.
- The company argues its prediction markets fall under exclusive federal jurisdiction through the Commodity Exchange Act and CFTC oversight.
- Only Massachusetts and Ohio are part of both disputes, showing Underdog’s litigation strategy extends beyond the seven states where it surrendered fantasy licenses.
Underdog Drops Fantasy Licenses as State Regulators Draw a Line
Underdog has stopped accepting new fantasy contest entries across seven states after state regulators forced the company to choose between maintaining its fantasy licenses and continuing its push into federally regulated sports event contracts.
Fantasy contests became unavailable in Maryland, Massachusetts, Michigan, Mississippi, New Jersey, Ohio and Pennsylvania as of last week. Entries submitted before those deadlines will continue normally and settle under the existing contest rules.
The shutdown includes Drafts, the snake draft and best ball product that helped establish Underdog as a fantasy operator.
It marks an unusually visible case of a company willingly giving up access to a business it built under state regulation in order to prioritize a product operating under a separate federal framework.
Regulators Forced Underdog to Choose Between Two Regulatory Systems
Founder and CEO Jeremy Levine said in a September 5 post on X that the affected states had taken a legal position Underdog disputes: offering CFTC regulated products was incompatible with continuing to hold fantasy sports licenses in those jurisdictions.
“Those states have taken a legal viewpoint we disagree with,” Levine wrote. He said the company therefore had to choose between keeping its fantasy licenses and surrendering them while continuing with its broader product strategy.
Underdog chose the latter.
Their position is built around the Commodity Exchange Act and federal oversight of its exchange, while state regulators continue to assert authority over gambling and gaming activity inside their borders.
Giving up the fantasy licenses removes one immediate point of leverage without settling whether states can independently restrict Underdog’s sports event contracts.
Underdog Opens Five Federal Cases Against State Regulators
Three days after Levine announced the fantasy shutdown, Underdog moved from accepting the immediate licensing consequences to challenging state authority in federal court.
On September 8, Underdog Exchange DCM and UDM LLC, doing business as Underdog Predict, filed separate lawsuits in federal courts in Massachusetts, Ohio, Wisconsin, New Mexico and Washington. The complaints seek declaratory judgments and permanent injunctions preventing state officials from applying gambling and sports wagering laws to Underdog’s federally regulated event contracts.
The legal theory follows the preemption argument that has become central to the broader prediction market fight. Underdog says the Commodity Exchange Act gives the CFTC exclusive jurisdiction over trading conducted on a designated contract market and that conflicting state enforcement is therefore barred under federal law.
Massachusetts and Ohio are the only two states that appear in both the fantasy license surrender and the new litigation campaign.
Underdog also sued three states where it did not just give up fantasy licenses, expanding the dispute beyond the immediate Drafts shutdown and into a wider challenge to state regulation of its prediction business.
The five cases are separate proceedings, meaning different federal judges can reach different conclusions on the same basic federal preemption theory. Underdog is effectively putting that argument before courts across four federal appellate circuits at once.
Why This Matters For Bettors
For bettors and fantasy players, the immediate impact is already visible. Underdog customers in seven states have lost access to Drafts because the company concluded that preserving its prediction business was more valuable than retaining those fantasy licenses.
That choice shows how the regulatory fight can affect customers before courts ever settle the underlying legal question. States control fantasy and gaming licenses, giving regulators leverage over companies that operate both state-licensed products and federally regulated event contracts. An operator can win the prediction market argument eventually and still face painful business decisions while the litigation is unresolved.
Underdog is now challenging that pressure from both directions. It surrendered licenses rather than abandon its federal strategy, then filed five lawsuits asking courts to limit the ability of states to regulate the prediction side of the business.
For hybrid operators, that raises a broader strategic problem. Companies with meaningful DFS, sportsbook or gaming businesses may have to decide how much state-regulated revenue they are willing to put at risk while prediction markets remain contested. The answer will depend heavily on the value of each existing license compared with the potential reach of a federally regulated event contract platform.
The lawsuits also expand an already fragmented national legal picture. Similar preemption arguments are being litigated in multiple jurisdictions, and appellate courts have already disagreed over how far federal commodities law protects sports event contracts from state gambling regulation. Five additional Underdog cases create more opportunities for conflicting rulings before the Supreme Court or Congress provides a uniform answer.
For state regulators, the licensing strategy has demonstrated real leverage: Underdog gave up seven fantasy licenses rather than comply with the position those states adopted. The company’s response also exposes the limitation of that approach. An operator willing to sacrifice its state license can move the dispute into federal court and argue that the state has no authority over the product it chose to protect.
What Happens Next
The five federal cases will now proceed independently in Massachusetts, Ohio, Wisconsin, New Mexico and Washington, with each state expected to defend its authority to apply gambling laws to sports event contracts offered within its borders.
The most important early development will be whether Underdog obtains injunctive relief in any of those courts. A favorable ruling could protect its prediction business in that jurisdiction and give other operators another decision to cite. A loss could strengthen state efforts to use both direct enforcement and existing gaming licenses against prediction market companies.
Underdog also has an unresolved customer question in the seven fantasy states. Levine said the company has ideas for bringing Drafts back to more players, but no concrete path has been announced.
For now, the company has made its priority unusually clear: when state fantasy licensing and its federal prediction market strategy came into conflict, Underdog protected the prediction business and took the broader jurisdictional dispute to court.
Marcus has spent over 20 years navigating the legal side of online betting - from his early days consulting for offshore operators to helping licensed U.S. sportsbooks launch in regulated markets. He’s worked with compliance teams, reviewed licensing frameworks in 15+ states, and advised on some of the biggest regulatory shifts since PASPA was repealed.
At BettingScanner, Marcus serves as the voice of reason - translating legalese into plain English and helping bettors understand what’s legal, what’s risky, and where the gray areas live. If you’re ever unsure about the rules, Marcus is your man - as he probably helped write them.
