Underdog Exchange DCM, Inc. and UDM, LLC, which does business as Underdog Predict, have taken regulators in Ohio, Massachusetts, and Wisconsin to federal court, after dropping Drafts in seven states this week. The company wants judges to stop both states from applying their gambling and sports betting laws to event contracts offered through its federally regulated market.

The cases, filed in federal courts in Ohio, Massachusetts, and Wisconsin, add Underdog to a widening legal fight over who gets to regulate prediction markets. Platforms argue these products fall under federal commodities law, while states increasingly view sports contracts as ordinary wagers that require local gambling licenses.

In Ohio, Underdog sued officials including Attorney General Andy Wilson and Ohio Casino Control Commission Interim Executive Director Andromeda Morrison. It says its status as a designated contract market and futures commission merchant places the contracts within the Commodity Futures Trading Commission’s authority under the Commodity Exchange Act.

Ohio has already taken an aggressive approach toward rival Kalshi. In April, the Casino Control Commission proposed a $5 million penalty for allegedly conducting unlicensed sports gaming. Kalshi has fought the state in federal court, although an Ohio judge previously declined to block enforcement while that litigation continued.

Underdog says that leaves it facing the same regulatory threat: “The threat of Defendants’ enforcement of Ohio law poses a direct and imminent threat to Underdog’s business and its users, and leaves Underdog with a ‘Hobson’s choice’… Either Underdog can continue to operate in Ohio, ‘expos[ing] [itself] to potentially huge liability’… or it can ‘suffer the injury of obeying [Ohio’s] law’ despite the fact that it is preempted.”

Prediction market regulation now hinges on a growing federal-state split for Underdog and other platforms

In Massachusetts, Underdog sued Attorney General Andrea Joy Campbell and Massachusetts Gaming Commission Executive Director Dean Serpa. The challenge arrives after Massachusetts secured a preliminary injunction restricting Kalshi’s sports-related event contracts.

Underdog argues state intervention conflicts with federal market rules and the Constitution’s Supremacy Clause. It also maintains that event derivatives can serve price discovery and hedging purposes instead of operating like conventional sportsbooks.

The legal picture is increasingly divided. In August, the Ninth Circuit ruled that Kalshi’s sports event contracts were sports bets rather than swaps, allowing Nevada to enforce its gambling laws. That decision conflicts with the Third Circuit’s earlier approach favoring Kalshi against New Jersey.

Wisconsin has become another front. Attorney General Josh Kaul brought enforcement actions involving Kalshi, Polymarket, Crypto.com, Robinhood and Coinbase. Kaul stated: “Thinly disguising unlawful conduct doesn’t make it lawful. These companies’ alleged facilitation of sports betting in Wisconsin should be shut down.”

The CFTC later sued Wisconsin officials. CFTC Chairman Michael Selig issued a stern warning against state interference: “Our message to Wisconsin is the same as to New York, Arizona, and others: if you interfere with the operation of federal law in regulating financial markets, we will sue you.”

Wisconsin litigation also extends to tribal gaming. A federal judge allowed the Ho-Chunk Nation’s central claims against Kalshi to continue, finding the tribe had plausibly alleged that accessible sports contracts could constitute class III gaming on tribal land.

Against that unsettled backdrop, Underdog is asking both federal courts for permanent injunctions and declarations that federal commodities law preempts the states’ gaming restrictions.

Featured image: Underdog