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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
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Coinbase says Kalshi caused a mistaken prediction-market settlement tied to Michigan's wild 13-12 win over Western Michigan. The crypto company plans to make affected winners whole while letting customers keep money they received because of the original error.
The dispute stems from a game that appeared finished before officials restored one second, giving Michigan another play and changing the result.
CNN correspondent Marshall Cohen reported Monday (September 7) that Coinbase customers were caught up in the problem. Screenshots reviewed by Cohen showed Coinbase apologizing for "an issue with the settlement" and saying it was "manually recalculating the balances for all affected accounts."
Cohen later shared a Coinbase statement that pointed directly at Kalshi.
"An erroneous settlement by Kalshi led to certain positions being underpaid."
Coinbase plans to credit affected customers with the full amount their winning positions should have paid. Customers who received money because of the earlier, incorrect result will also be allowed to keep it.
"Payouts already made under the original incorrect settlement will stand and will not be reversed or recovered," the statement said.
That differs from Kalshi's handling of the mistake, which involved reversing payouts issued when Western Michigan was initially treated as the winner.
Coinbase will pay rightful Michigan winners without clawing back mistaken payouts
No. 16 Michigan trailed Western Michigan 12-7 when quarterback Bryce Underwood launched what looked like the game's final pass. The Hail Mary was incomplete, the clock showed zero and Western Michigan began celebrating an apparent upset.
After reviewing the play, officials concluded Western Michigan's Micah Davis had touched the ball after jumping from out of bounds with one second remaining. The Big Ten later said Davis "started his jump from an established out-of-bounds position" before touching the ball.
Michigan received another snap, and Underwood found JJ Buchanan for a 47-yard Hail Mary touchdown that produced the 13-12 victory.
"One for the history books right here," Michigan coach Kyle Whittingham said after the game.
The restored second remained controversial. ReadWrite reported that broadcast footage appeared to show zero on the clock before Davis made contact. Western Michigan asked for clarification but said it would not appeal.
Kalshi had already settled its "Western Michigan vs. Michigan" market by the time the review ended. We previously put trading volume at about $18.6 million. Kalshi initially paid positions based on a Western Michigan victory.
Cohen later reported that Kalshi admitted it had "wrongly and prematurely settled" the market. Kalshi reversed those payouts, reimbursed traders mistakenly treated as losers and paid positions matching Michigan's official win.
"We corrected the result to a Michigan win, making sure all Kalshi customers got paid out correctly."
ReadWrite also reported that a customer shared a Kalshi email saying the market had been settled "to the wrong outcome" before being "re-settled to the correct result."
Coinbase is taking another route. Cohen said the company blamed Kalshi for the Michigan "prediction market snafu" but would "let the wrongful winners keep the payouts."
Featured image: Canva
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Americans are projected to legally bet $29.5 billion on the 2026 NFL season through regulated commercial sportsbooks, according to a new American Gaming Association estimate. That would barely move from the $29.4 billion wagered last season, pointing out a sharp slowdown after years of major expansion.
The AGA says the numbers cover legal, state-regulated commercial sportsbooks. It argues that prediction markets are increasingly competing for sports wagers while offering contracts nationwide, including in states where conventional sports betting remains illegal.
The AGA estimates $29.5B will be bet on the 2026 NFL season through commercial sportsbooks. That indicates no growth from last year as so-called "prediction markets" offering sports bets are exploding while paying no state gaming taxes.
— American Gaming Association (@AmericanGaming) September 4, 2026https://t.co/XDfXTktaGn
"We're excited for the NFL season to kickoff, as are millions of fans eager to engage with their favorite teams. Since the Supreme Court struck down the federal sports betting ban in 2018, legalized sports betting had seen tremendous growth," said AGA President and CEO Bill Miller. "But this year is different. Since the widespread launch of backdoor sports betting on so-called "prediction markets," the growth of legal handle has stalled."
Prediction markets squeeze growth in regulated NFL betting
The slowdown follows a year in which prediction platforms sharply increased their visibility. Sensor Tower research compiled for the AGA found licensed sportsbook digital advertising impressions fell nearly 14% during 2025. Meanwhile, prediction-market advertising surged, and about 43% of digital sports wagering ads seen during early 2026 lacked state-mandated responsible gaming messages because they came from prediction-market operators.
Kalshi alone generated roughly 5.2 billion advertising impressions early this year, compared with around 2.9 billion for FanDuel. The AGA also says sports contracts now account for about 80% of Kalshi’s volume.
Questions over oversight reached Congress in May, when senators heard competing arguments about whether sports event contracts should fall under federal commodities rules or state gambling laws. AGA officials portrayed the platforms as sportsbooks operating outside established state systems, while industry representatives argued they are federally regulated exchanges where users trade against each other.
Age restrictions are another dividing line. The AGA estimates users aged 18 to 20 generated $5.1 billion in Kalshi volume, although that group falls below the legal sports betting age in 35 of the 40 jurisdictions allowing wagering.
"These "prediction market" platforms are dangerously misleading consumers by marketing sports wagers as an investment, rather than what it is: entertainment," Miller added. "Kalshi and other "prediction markets" say they don't need to follow state- and tribal- regulated sports betting laws or pay state gaming taxes. Their defiance means consumers, including teenagers and freshmen, placing bets without the protections, oversight, and accountability that the legal market provides."
The AGA calculated its $29.5 billion projection using 2026 national handle growth, last season’s estimated total and football-specific data from selected states. It includes preseason betting, futures placed from March onward, the playoffs and Super Bowl LXI in February 2027.
Featured image: Canva
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Kalshi had to undo payouts on a college football prediction market after declaring Western Michigan the winner against Michigan before officials had actually finished deciding the game.
The heavily traded "Western Michigan vs. Michigan" market drew about $18.6 million in trading volume, according to reports from CNN correspondent Marshall Cohen and NBC Sports. Kalshi first paid contracts based on a Western Michigan victory, then reversed those transactions and ultimately paid traders holding the winning Michigan contracts.
"We corrected the result to a Michigan win, making sure all Kalshi customers got paid out correctly," Kalshi said in a statement shared by sports betting reporter Bill Speros.
No. 16 Michigan was trailing 12-7 when quarterback Bryce Underwood threw an apparent final Hail Mary. The pass fell incomplete and the clock showed zero, sending Western Michigan into celebrations.
Officials then reviewed the play. They ruled Western Michigan’s Micah Davis had touched the ball after jumping from out of bounds while one second remained. The Big Ten later said Davis "started his jump from an established out-of-bounds position" and made contact before time expired.
That decision handed Michigan another snap. Underwood found JJ Buchanan for a 47-yard Hail Mary touchdown, completing a 13-12 Michigan victory.
"One for the history books right here," Michigan coach Kyle Whittingham said afterward.
The restored second remained disputed, with broadcast footage appearing to show zero before Davis touched the ball. Western Michigan sought clarification but said it would not appeal.
Michigan early market payout exposes Kalshi settlement risks
Kalshi, meanwhile, had already treated Western Michigan as the winner. Cohen reported that the company acknowledged it had "wrongly and prematurely settled" the market. It clawed back those payouts, restored funds to traders initially marked as losers and paid Michigan contract holders. NBC Sports reported the same sequence.
One customer later posted an email attributed to Kalshi that said: "Yesterday evening the Western Michigan vs Michigan market was initially settled to the wrong outcome." It added that payouts were reversed and the market "re-settled to the correct result." Another user claimed that some were given $50 as compensation.
The episode follows another Kalshi controversy over how prediction contracts are resolved. Earlier in 2026, its market on whether Iran’s Supreme Leader Ali Khamenei would leave office caused confusion after his reported death. Kalshi said its rules contained a death carveout requiring settlement using the last traded price rather than automatically resolving the contract YES. The company later reimbursed fees and net trading losses after users complained about how those rules had been understood.
Both episodes highlight the same pressure point: prediction markets need clear rules for deciding not only what counts as an outcome, but when that outcome is final.
NBC Sports’ Mike Florio summed up the Michigan episode with a familiar warning: "It ain't over 'til it's over."
For sports contracts, Michigan’s extraordinary final second showed why rapid settlement carries real risk. A market can look finished, traders can get paid and the apparent result can still change before the game officially ends.
ReadWrite has reached out to Kalshi for comment.
Featured image: Michigan Football via X
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Underdog Fantasy is pulling new Drafts entries from seven U.S. states this week after founder Jeremy Levine said regulators left the company facing a choice between state fantasy licenses and products licensed by the Commodity Futures Trading Commission.
Levine said on social media September 5 that the cutoff will take effect immediately after Wednesday's kickoff in Massachusetts, Maryland, Michigan, Mississippi, New Jersey, Pennsylvania and Ohio.
"Drafts community, I have some not fun news to share," Levine wrote. "Right after kickoff on Wednesday, we will be shutting down Drafts in seven states: MA, MD, MI, MS, NJ, PA and OH."
Already-entered contests will still go ahead. Levine said existing entries will "continue as normal," although customers in those states cannot submit new Drafts entries after the deadline.
The change scales back one of Underdog's earliest fantasy offerings at a time when daily fantasy sports rules continue to differ widely across the country.
CFTC licensing clash forces Underdog to pull Drafts from seven states
Levine said state regulators have taken a position Underdog disputes, linking the company's ability to hold fantasy licenses with its CFTC-regulated offerings.
"Those states have taken a legal viewpoint we disagree with: if we offer our CFTC-licensed products we cannot offer fantasy sports in those states," Levine wrote. "So we had to choose."
He said Underdog's options were to keep its fantasy licenses in those jurisdictions or give them up while continuing what he called "effectively our full experience, minus Drafts."
Fantasy sports oversight has traditionally happened state by state, leaving operators to navigate different rules and licensing requirements. Massachusetts, for example, regulates DFS operators serving residents and sets consumer safeguards covering areas including minors, college sports contests and customer funds.
Underdog has faced regulatory pressure elsewhere, although under different circumstances. In California last year, it changed its DFS pick'em offering to a peer-to-peer format as questions continued over the legal treatment of fantasy sports. PrizePicks made a similar shift.
California Attorney General Rob Bonta had issued a legal opinion addressing daily fantasy sports and later said his office planned to enforce that interpretation against operators continuing to offer games covered by it.
"We expect our legal opinion to be followed and complied with by everyone governed by it," Bonta said at the time.
Underdog challenged California's position but failed in its effort to stop the opinion from being issued, then moved its California pick'em contests to the peer-to-peer format.
This seven-state withdrawal involves a different issue, with Levine specifically pointing to the clash between state fantasy licensing and Underdog's CFTC-licensed products.
For Levine, the decision also hits a product closely tied to Underdog's early history.
"I love Drafts," he wrote. "It was the first game we ever launched and a big part of what built Underdog."
Levine said Drafts now draws usage "anywhere near" the company’s other products, while stressing that the format and its community remain important.
"We have some ideas about how to get Drafts back to more customers, but it's too early to commit to anything yet," he added. "I'm optimistic, and we're definitely going to try."
Featured image: Underdog
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