Underdog Dropped Fantasy Licenses in 7 States, Then Sued 5

Underdog Fantasy built its business on daily fantasy sports contests before acquiring Aristotle Exchange's CFTC-registered Designated Contract Market and derivatives clearing organization in 2025 and launching its own prediction-market exchange, UDX, on top of that registration. That combination put the company in a position several states said was not allowed: operating a state-licensed DFS product and a federally registered event-contract exchange in the same jurisdiction at the same time.

Founder and CEO Jeremy Levine announced on September 5, 2026 that Underdog would surrender its DFS licenses in Massachusetts, Maryland, Michigan, Mississippi, New Jersey, Pennsylvania, and Ohio rather than give up its exchange business, telling users in a public message that began, "I have some not fun news to share."

By Levine's account, regulators in six of the seven states, all but Mississippi, took the position that Underdog could not simultaneously hold a state DFS license and operate the kind of federally regulated event-contract product UDX offers. Mississippi had not litigated the point directly but had joined a multistate coalition letter taking the same position.

Underdog's existing Drafts contests already entered in the affected states were allowed to run to completion, but the company stopped opening new fantasy contests there, timed to the 2026 NFL season's September 9 kickoff. Its UDX prediction-market products remained available in most of the same states even as the fantasy-contest product exited.

Three days after announcing the DFS surrender, Underdog sued five different states, Ohio, Massachusetts, Wisconsin, New Mexico, and Washington, on September 8, 2026, seeking permanent injunctions against those states' gambling laws as applied to its event contracts. The suits rely on the same Supremacy Clause preemption theory Kalshi has pressed nationwide: that the Commodity Exchange Act gives the CFTC exclusive jurisdiction over Underdog's federally listed sports contracts, leaving no room for state gambling law to reach them.

An Underdog senior vice president framed the litigation as a last resort, saying the company "didn't want to sue, but sometimes it's the only way to resolve a dispute," and called for "one, enforceable federal standard" in place of the current state-by-state patchwork. All five states sued had already taken enforcement positions against prediction-market operators, making the suits an extension of the same underlying dispute rather than an unrelated new front.

The trade-off reveals how differently Underdog now values its two product lines. State DFS licenses are a mature, well-understood compliance category with little room for a federal preemption argument, while UDX's CFTC-registered event contracts carry exactly the preemption theory Kalshi and other operators are testing in court, and that Underdog is now litigating offensively in its own name.

Choosing to preserve UDX over Drafts in seven states signals that Underdog sees more long-term value in the federally regulated exchange, even at the cost of an established consumer product with real trading volume, given up during the opening week of the NFL season that fantasy-sports operators typically treat as their most valuable stretch of the year.

Underdog's dual move, giving up ground in seven states while suing five others over the identical legal theory, shows an operator managing state-by-state exposure as a portfolio rather than fighting every front the same way. It withdrew where a state policy conflict was already settled and litigated where enforcement was newer or the outcome less certain.

The five new suits add another operator's name to a docket already crowded with Kalshi, Polymarket, and Novig litigation over the same underlying question. Each additional plaintiff pressing the same Supremacy Clause theory in a different state adds another data point for whichever court, up to and including the Supreme Court through New Jersey's pending certiorari petition, eventually resolves the question nationwide.