Underdog has filed a federal lawsuit against New Mexico officials seeking to prevent the state from applying its gambling laws to the operator's prediction market activities.
The complaint, filed in the US District Court for the District of New Mexico, names Attorney General Raúl Torrez and officials from the New Mexico Gaming Control Board. Underdog is seeking declaratory and injunctive relief, arguing that the Commodity Exchange Act (CEA) gives the Commodity Futures Trading Commission (CFTC) exclusive jurisdiction over trading on federally regulated designated contract markets (DCMs).
Underdog operates both a CFTC-regulated DCM and a futures commission merchant. Its FCM began offering event contracts in New Mexico in March, while its own exchange began listing contracts in the state in July following its acquisition of Aristotle Exchange.
The action follows New Mexico's June lawsuit against Kalshi, which alleges the prediction market operator offers unlicensed online sports betting. The state argues Kalshi's products fall under its Criminal Code and Gaming Control Act, while the CFTC subsequently sued New Mexico to block application of those laws to federally registered contract markets.
Underdog argues it faces a similar enforcement threat. Its complaint points to additional actions filed by Polymarket and Novig after New Mexico declined to rule out enforcement against other prediction market exchanges.
The dispute forms part of a wider jurisdictional conflict over sports event contracts. The Third Circuit has ruled that federal derivatives law preempts New Jersey's attempt to regulate Kalshi, but the Ninth Circuit reached the opposite conclusion in August, finding that Nevada could apply its gaming laws to Kalshi's sports contracts. New Jersey has since asked the US Supreme Court to review the issue.
The CFTC is also developing rules governing prediction markets. Its June proposal would define gaming for event-contract purposes and establish factors for determining whether contracts should be prohibited as contrary to the public interest.
Underdog's legal exposure comes as its ownership is set to change. In July, IG Group agreed to acquire the operator for up to $1.3bn, with the transaction expected to complete in late 2026 or early 2027 subject to regulatory approvals.
Underdog is seeking a permanent injunction preventing New Mexico officials from enforcing state gambling or wagering laws against its DCM and transactions conducted through federally designated contract markets
