Underdog has filed a federal lawsuit against the Missouri to prevent the state from treating its event-contract products as sports betting. The case is related to federal commodities law takes precedence over state gambling regulations governing contracts tied to events, including sports outcomes.
Underdog states that the Missouri Attorney General’s Office notified about the enforcement starting in 3 days, on November 6. This comes after the state extended the original deadline for compliance to October 30. On September 8, Underdog filed lawsuits against officials from Massachusetts, New Mexico, Ohio, Washington and Wisconsin.
On November 8, Underdog Exchange and Underdog Predict filed a lawsuit in the U.S. Federal Court for the Western District of Missouri. The two companies made the Missouri Attorney General Catherine Hanaway and officials from the Missouri Gaming Commission the defendants, requesting that the court declare that state enforcement is preempted by the federal law and issuing a permanent injunction.
The dispute began with a letter in which the AG’s Office informed Underdog Sports Wagering LLC, a related company, on the 17th of September. In the letter, the company was provided with two options: cease conducting the activity or secure a state license and comply with the state’s tax policy and age requirements.
Missouri argues that contracts for sporting events are considered sports betting and not swaps under the federal Commodity Exchange Act. The lawsuit involves two different parts of Underdog’s business. Underdog Exchange operates a market where event contracts are listed, while Underdog Predict acts as a futures commission merchant (FCM).
The case also raises questions regarding federal regulations of the access to prediction markets. On November 5, the CFTC gave an interpretation which stated that the exchanges cannot bar the U.S. traders from entering the market, as long as they meet other qualifying requirements. The guideline gives exchanges a timeframe of 30 days to remove the restrictions that conflict with the federal regulations concerning access or explain why.
Underdog states that withdrawing from Missouri may make it violate the federal law and disrupt the client positions that already exist. Under the conditions of the policy, traveling users cannot open new positions or cash out their funds, but the open positions still remain on the market.
In addition to the lawsuit, Underdog submitted an application for a preliminary injunction to Judge Beth Phillips to ban Missouri from carrying out enforcement activities till the case is resolved, on November 8. The state has to reply to the request by November 23, if the court does not set another deadline.
