Underdog Sues to Halt Missouri Enforcement

Underdog Exchange and Underdog Predict filed suit on November 8 in the U.S. District Court for the Western District of Missouri. The defendants named in the case are State Attorney General Catherine Hanaway and officials of the Missouri Gaming Commission. The companies are asking the court to declare that federal law preempts the state's enforcement and to issue a permanent injunction.

According to the companies, the Missouri Attorney General's Office announced on November 6 that the enforcement process would begin within three days. The compliance deadline, which had previously been extended, was moved to October 30. On September 17, the Attorney General's Office sent a letter to Underdog Sports Wagering LLC, a subsidiary of Underdog. The letter offered two options: stop the activity, or obtain a license and meet the tax, fee and age requirements. The letter was part of a campaign covering six companies.

Missouri's position is that sports event contracts count as sports wagering and are not swap contracts under the Commodity Exchange Act. According to the state, federal law does not eliminate these requirements. Under the state constitution, licensed sports wagering companies must enforce a minimum age limit of 21 and pay a 10 percent tax on adjusted gross revenue. The initial fee for a mobile license is up to $500,000, and the renewal fee every five years is also up to $500,000.

Underdog Predict says that, as a swap intermediary, it accepts customer orders for contracts on other federally registered exchanges. The company states that it applies an 18-year age limit for users in Missouri and requires users to be physically located in an eligible state. This limit is lower than the age limit for sports betting sites in Missouri. Underdog argues that forcing it to withdraw from Missouri violates its federal access obligations and disrupts the management of open positions. On November 5, the CFTC issued a commentary stating that exchanges cannot exclude eligible U.S. participants based on their state location. The agency has asked exchanges to remove access restrictions that violate these requirements within 30 days, or to explain why compliance is not possible. Underdog also filed a motion for a preliminary injunction on the same day as the lawsuit. Missouri must submit its response to this motion by November 23. That date will stand unless the court changes the schedule.