Nine companies received the same letter from one state agency in the space of a single order. Connecticut’s Department of Consumer Protection told Underdog, Polymarket, Coinbase, Crypto.com, Robinhood, Prophet X, Novig, Webull and Gemini to stop offering sports-event contracts in the state, stop advertising them, and let Connecticut users pull their money out. One of the nine answered with a 39-page federal complaint. In a different state, a regulator quietly agreed to stand down. That combination, all inside a few days, is why prediction market developments are worth an orientation piece rather than another headline.
What exactly did Connecticut do, and how did Underdog respond?
The DCP’s position is straightforward: sports-event contracts are gambling by another name, and offering them in Connecticut breaches state gaming law and unfair-trade-practices law. Hence the cease-and-desist orders, the advertising ban, and the requirement that in-state users be allowed to withdraw existing funds.
Underdog took it to federal court. Its complaint asks the U.S. District Court for the District of Connecticut to stop the DCP and Attorney General William Tong from what it calls the unlawful exercise of state jurisdiction over its event contracts. Specifically, it wants a declaratory judgment that Connecticut cannot apply state gaming regulation to event contracts at all, plus a permanent injunction blocking enforcement of those laws against its prediction markets, and it asks the court to head off any future attempt by the state to regulate the category.
The legal spine of the argument is jurisdictional. Underdog says it operates federally regulated designated contract markets that list live event contracts for trading, and that the Commodity Futures Trading Commission holds sole authority over event contracts and other derivatives traded on those markets. That includes the decision on whether particular gaming-related contracts should be prohibited as contrary to the public interest. In other words: if anyone gets to ban these, it’s the federal regulator, not Hartford.
Underdog is not alone in that reading. Robinhood has filed in federal court to block Connecticut’s enforcement, and so has the CFTC itself, both leaning on federal preemption of state gambling rules.
Why did Montana back off Kalshi?
The second thread runs the other way. Kalshi has dropped its Montana lawsuit, and in exchange Montana agreed not to enforce its gambling laws against the company while Kalshi pursues a rehearing before the U.S. Court of Appeals for the Ninth Circuit.
The terms sit in a five-page joint stipulation. Montana won’t pursue enforcement, investigation, cease-and-desist proceedings or other administrative action against Kalshi until either further review is denied or the Ninth Circuit rules en banc. If the state later decides to act once a decision lands, it has to give Kalshi 30 days’ written notice first. The stipulation follows Kalshi’s September 9 move at the Ninth Circuit.
Read the two stories together and the shape of the fight becomes clear. Platforms want the question answered once, at federal level. States want it answered state by state, under gaming law. Everyone is racing to pick the forum that suits them, and standstill agreements like Montana’s are how you buy time without conceding the point.
What is an event contract, and is it really different from a bet?
An event contract is a derivative whose payout depends on whether a specified real-world event happens. Buy a contract on an outcome, and if it resolves yes, it settles at a fixed value; if not, it’s worth nothing. The price you pay is effectively the market’s implied probability. A contract trading at 65 cents on the dollar implies roughly a 65% chance.
Economically, the risk profile looks a lot like a bet. Structurally, it isn’t built like a sportsbook. On a sportsbook, the operator sets the price and carries a margin (the overround) that gives it a long-run edge. On an exchange-style market, prices come from other participants, and the venue takes fees and lives off the spread rather than a posted margin. That distinction is real, but it is not the same as being cheap or edge-free: fees, spreads and thin liquidity all cost money, and most short-term traders in these markets lose.
Four terms carry most of the weight in this story:
- Designated contract market (DCM) — a federally registered exchange where derivatives, including event contracts, can legally be listed for trading.
- CFTC — the federal agency overseeing derivatives markets, and the regulator platforms point to when states come knocking.
- Preemption — the argument that federal law occupies the field and displaces conflicting state rules.
- En banc — a rehearing by a larger panel of appellate judges, which is what Kalshi is chasing in the Ninth Circuit.
What are the states actually worried about?
Connecticut’s objections are not abstract. Officials say these markets route around consumer-protection rules that licensed operators have to follow: they allow participation by people under 21, they don’t respect state self-exclusion lists, and they permit positions on in-state college teams. Each of those is a specific prohibition in state gaming regulation, and each is the sort of rule a gaming regulator is built to police and a financial regulator historically hasn’t been.
That’s the substance under the jurisdictional argument. The question isn’t only who has authority, but which rulebook a product that behaves like sports betting should be held to.
How the two models compare
| Feature | Licensed sportsbook | Sports-event contract platform |
|---|---|---|
| Primary regulator | State gaming regulator | CFTC, via a designated contract market |
| Where it can operate | Only in states where licensed | Claimed nationwide under federal registration |
| Minimum age | Typically 21 in regulated US markets | Contested; Connecticut says under-21s can participate |
| Self-exclusion lists | Mandatory compliance | Contested; state lists not necessarily applied |
| College team restrictions | State-specific bans, including in-state teams | Contested; Connecticut cites in-state college markets |
| How the price is set | Operator sets odds with a built-in margin | Participants trade; venue earns fees and spread |
Where do the leagues and data suppliers fit in?
Genius Sports is the newest name attached to the prediction-market story, and its involvement is a useful signal even before the details settle. Pricing contracts on live sport needs the same fast, official data that powers in-play betting, plus the integrity monitoring that comes with it. Once the suppliers who sit between leagues and operators start working with event-contract venues, the category stops being a crypto-adjacent curiosity and starts plugging into the same plumbing as regulated sports betting.
That has a knock-on effect on the leagues themselves. Official data deals, integrity reporting and marketing arrangements are levers the leagues can pull, and they’ll be pulled in whichever direction protects existing sportsbook partnerships.
What does this mean in practice?
For operators, the near-term cost is uncertainty rather than closure. A platform can be live nationwide on Monday and blocked in a state on Tuesday, then unblocked by a district court, then re-exposed on appeal. Compliance teams are effectively planning for several futures at once. Licensed sportsbooks, meanwhile, are watching a competitor claim national reach without state licensing fees, tax rates or local advertising rules, which is why the industry’s lobbying volume on this has gone up rather than down.
For readers who use these products, three practical points follow. Availability is state-dependent and can change without much warning, as Connecticut’s withdrawal requirement shows. The protections you’d expect from a licensed sportsbook, including self-exclusion recognition and firm age gating, are exactly what’s being argued over, so don’t assume they’re in place. And an event contract that behaves like a bet carries the same downside: you can lose the full amount you put in, fees and spreads work against short-term trading, and no market price is a forecast you can rely on.
If you’re using any of this for entertainment, set a spend limit before you start and use whatever cooling-off or exclusion tools the platform offers. Support services for gambling harm are free and confidential in most jurisdictions.
What to watch next
Three markers will tell you which way this is heading. Whether the Ninth Circuit grants Kalshi a rehearing, since an en banc ruling would carry far more weight than the state-by-state skirmishes. Whether the Connecticut district court accepts that federal registration as a DCM strips a state gaming regulator of jurisdiction. And whether the CFTC uses its own authority to decide if sports-event contracts are contrary to the public interest, which is the one move that could settle the question without a decade of appeals.
Until then, prediction market news will keep arriving in this form: a lawsuit here, a standstill agreement there, and a product that is legal, illegal or in limbo depending on which side of a state line you’re standing on.