The Arizona Department of Gaming has sent Underdog Sports a Notice of Violation and Intent to Revoke its daily fantasy sports license due to its involvement in the prediction market that offers sports event contracts under the auspices of the Commodity Futures Trading Commission.
Underdog Has Been Served
Underdog Sports, a daily fantasy sports provider, expanded into the mobile sports betting industry after securing a license in North Carolina in March 2024. It was then poised to launch in Missouri, but withdrew its application shortly before the Show Me State’s December 1st market launch.
However, a collaboration with Crypto.com fueled its inclusion in the increasingly popular derivatives market, which has been offering sports event contracts in all 50 states under the governorship of the federal Commodity Futures Trading Commission (CFTC). The prediction market platforms, like industry leader Kalshi, have drawn the ire of state gaming commissions throughout the nation that have contested their legitimacy to operate unfettered and without a state gaming license or any obligation to pay taxes to those states.
Regulatory Pushback From States
This conflict necessitated its withdrawal from North Carolina and Missouri’s sports betting industry. However, now the Arizona Department of Gaming has zeroed in on Underdog’s DFS license, threatening to revoke it if it continues in the prediction market.
Despite Underdog’s contention that it will not offer sports event trading contracts in markets where it serves as a DFS operator, like Arizona, the Arizona Department of Gaming has issued the company a Notice of Violation and Intent to Revoke its daily fantasy sports license, stating the following:
“Underdog makes the sale of event contracts with Crypto plain on the same site on which it advertises other products to Arizona residents.”
And specifically, the notice outlines the following breaches: (1) Crypto.com’s offering of event contracts in Arizona constitutes illegal sports betting, and (2) via Underdog Predict, Underdog is enabling the sale of event contracts in the United States in partnership with Crypto.com.
Setting a Precedent?
Underdog Sports will likely counter this action, arguing it complies with the CFTC’s regulations, and because it is a federal agency, its power supersedes that of any state gaming commission. However, Arizona served its partner, Crypto.com, with a cease-and-desist order in May and has now become the first state to target a DFS or sports betting provider engaging in the prediction market, even if it is not operating within the boundaries of that state.
Arizona’s Warning and Public Disclosure
Chris Kotterman of the Arizona governor’s office brought this action to the attention of the audience he spoke to at the National Conference of Legislators from Gaming States in San Juan last week. Underdog was reportedly sent a warning in September not to enter the prediction market.
“This was a very clear case that the operator was offering something in Arizona that we consider to be an illegal product,” Kotterman said during an NCLGS panel discussion.
Broader Implications for State Gaming Agencies
This now sets the stage for other state gaming agencies to do the same to their DFS and sports betting platform operators. Major online sportsbooks like DraftKings and FanDuel have already stated their intentions to launch prediction market brands of their own, while Fanatics has already done so, but not in the states in which they operate.
The question is, will the state gaming agencies be prepared to see the platforms that pay heavy taxes walk away from sports betting and instead focus on the prediction market, where no state taxes will be paid?
