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Arizona regulators have taken a rare and forceful step. The Arizona Department of Gaming revoked the fantasy sports licence held by Underdog, citing the company role in prediction markets tied to sports event contracts.
The action marks the first known case of a DFS or sportsbook licence holder losing a state permit due to exposure to prediction markets.
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The ADG issued Underdog a Notice of Violation and Intent to Revoke, pointing to Underdog work as a technology service provider for Crypto.com, a CFTC designated contract market offering sports related event contracts.
Underdog launched its prediction markets product in September through the Crypto.com partnership, becoming the first DFS licence holder to step into event contracts.
Arizona regulators said Crypto.com contracts amount to illegal sports betting under state law. While Underdog Predict does not allow trading in Arizona, the ADG said, “Underdog makes the sale of event contracts with Crypto plain on the same site on which it advertises other products to Arizona residents.”
The ADG relied on Arizona Revised Statutes A.R.S. §5-1209(A)(2) and (12), which allow action against licensees that aid violations of state law or whose associations threaten the public interest.
In the notice, the regulator said Underdog “is aiding and abetting Crypto’s illegal conduct in Arizona and providing it with a façade of legitimacy,” and added that the relationship “poses a threat to the public interest of this State.”
Citizens equity research analyst Jordan Bender said Underdog likely will not stand alone. He said Underdog faced action first due to longer exposure to prediction markets among Arizona licence holders.
“The two major companies we believe this will impact are Fanatics, with a high-single-digit handle market share in AZ (gaming license), and PrizePicks (fantasy license),” Bender said.
Fanatics recently launched Fanatics Markets with Crypto.com. PrizePicks maintains relationships with Kalshi and Polymarket.
Arizona regulators already issued cease and desist letters to Kalshi and Polymarket. Crypto.com pulled sports event contracts from Arizona and exited similar products in several other states.
DraftKings and FanDuel appear unaffected. Both hold fantasy sports and sports wagering licences in Arizona and avoid offering sports event contracts in states where sports betting licenses exist.
“We believe both of these companies took the cleanest way possible to avoid friction with states and, on the surface, should not be impacted by the decision out of Arizona,” Bender said.