Arizona regulators have revoked Underdog’s fantasy sports license, citing the company’s expansion into prediction markets. The move marks the first time a daily fantasy sports (DFS) or sportsbook operator has lost a state permit due to involvement in event contracts.
Underdog, in partnership with Crypto.com, debuted its prediction market platform in September — becoming the first DFS or sportsbook license holder to do so. According to Citizens equity research analyst Jordan Bender, Arizona likely targeted Underdog first because of its longer exposure to prediction markets compared with other licensees. But he warns Underdog is unlikely to be the last.
“The two major companies we believe this will impact are Fanatics, with a high-single-digit handle market share in Arizona, and PrizePicks,” Bender noted. “Fanatics launched Fanatics Markets two weeks ago with Crypto.com, while PrizePicks has ties to Kalshi and Polymarket.”
Both Kalshi and Polymarket have already received cease-and-desist orders from Arizona regulators. Crypto.com, meanwhile, withdrew its event contracts from Arizona last Friday and simultaneously pulled sports derivatives from Illinois, Maryland, Massachusetts, Michigan, Nevada, New Jersey, and Ohio — all states that permit online sports betting.
Regulatory Domino Effect
Bender argues the Underdog case “opens a can of worms” for how states may respond to gaming companies pursuing prediction markets. Across the U.S., regulators have consistently warned operators that venturing into event contracts could jeopardize their licenses. Yet Arizona’s decision highlights inconsistencies.
“The picking and choosing from the state creates uncertainty,” Bender said. “For example, Arizona awarded Bet365 a gaming license despite its black market exposure in China, but is now stripping a license for an offering not even conducted in-state.”
He adds that Underdog’s situation is not unique and predicts other operators will face similar consequences.
DraftKings and FanDuel Hold Their Ground
For now, DraftKings and FanDuel — the two largest sportsbook operators nationally and the only ones in Arizona with both fantasy sports and sports wagering permits — appear insulated.
Both companies are exploring prediction markets but have avoided offering sports event contracts in states where they hold wagering licenses. FanDuel has managed this through its partnership with CME Group, while DraftKings has pursued flexibility via its acquisition of Railbird.
“We believe both companies took the cleanest path to avoid friction with regulators,” Bender concluded. “DraftKings’ Railbird deal, in particular, gives it the ability to adapt offerings as regulations evolve.”
