Arizona regulators have initiated formal steps that would finish Underdog’s authorization to function every day fantasy sports activities contests within the state, marking a first-of-its-kind enforcement motion tied to prediction markets. The Arizona Department of Gaming (ADG) notified the corporate on Dec. 5 that it intends to revoke Underdog’s fantasy sports activities contest operator license, citing the operator’s enterprise relationship with Crypto.com and the providing of sports activities occasion contracts that state officers classify as unlawful playing exercise.
Regulatory Findings Tied to Crypto.com Relationship
Underdog has held its Arizona fantasy sports activities license since Aug. 23, 2021. While the corporate doesn’t supply its prediction market merchandise in Arizona, regulators concluded that its partnership with Crypto.com connects it to unlicensed exercise occurring throughout the state. The division’s discover argues that Underdog’s function extends past a passive relationship and as a substitute contributes to conduct that undermines Arizona’s gaming legal guidelines and regulatory framework.
In a discover obtained via a public information request, the ADG outlined its place that Underdog’s partnership with Crypto.com quantities to assist for illegal gaming. The division wrote that it had decided Underdog was instantly aiding Crypto.com’s operations in Arizona, regardless of the state having beforehand ordered the trade to cease providing sports activities occasion contracts.
“ADG has determined that Underdog, by contracting with Crypto, benefitting from Crypto’s services, supporting Crypto’s interests, and providing financial support to Crypto is aiding and abetting Crypto’s illegal conduct in Arizona and providing it with a façade of legitimacy. Moreover, and in the same fashion, Underdog’s relationship with Crypto is an association that poses a threat to the public interest of this State. As a result, the Department hereby provides Underdog notice of its intent to revoke fantasy sports contest operator license FS200008.”
State officers have emphasised that the difficulty stems from exercise going down inside Arizona. Senior coverage advisor Chris Kotterman from the Arizona governor’s workplace defined that Crypto.com continued to supply prediction market merchandise after receiving a cease-and-desist order earlier this yr, and that Underdog’s subsequent partnership raised suitability issues.
“There’s a very clear case that the operator was offering something in Arizona that we consider to be an illegal product,” Kotterman mentioned throughout remarks on the National Council of Legislators from Gaming States Winter Meeting.
He added that the division sought data from Underdog about the character of its relationship with Crypto.com earlier than deciding that the association posed a threat to its license.
Warnings to Licensees and Enforcement Stance
The ADG’s motion follows a collection of warnings issued all through 2024. In May, the division despatched cease-and-desist letters to Crypto.com, Kalshi, and Robinhood, asserting that their sports activities occasion contracts violated Arizona’s occasion wagering statutes. In September, the regulator prolonged its messaging to licensed sports activities betting and fantasy sports activities operators, cautioning that partnering with prediction market suppliers might jeopardize their approval to function.
In that September correspondence, the division acknowledged that it might take into account each direct and oblique involvement with unlicensed occasion contracts when assessing a licensee’s ongoing suitability. The message strengthened that licensure in Arizona stays topic to steady evaluation reasonably than a one-time approval.
According to Sports Betting Dime, Arizona Department of Gaming Director Jackie Johnson underscored that method in feedback addressing the Underdog matter. “The Arizona Department of Gaming is committed to thoroughly investigating and evaluating the suitability of our licensees that maintain relationships with operators conducting illegal, unlicensed gaming activity in Arizona. When unsuitable conduct is occurring, the department will take enforcement action consistent with its statutory authority to protect consumers, preserve lawful gaming revenues to the state and maintain public confidence in Arizona’s regulatory framework.”
While Underdog is presently the one operator to obtain a discover of intent to revoke, officers have indicated that related conduct by different licensees would face the identical scrutiny. Kotterman famous that the division would view comparable partnerships in the identical means, although he stopped in need of predicting additional actions.
Underdog has 30 days from the Dec. 5 discover to request a proper listening to or attraction. The firm has confirmed that it plans to problem the regulator’s determination. General counsel Nicholas Green mentioned the corporate believes the state is overstepping its authority. “Arizona regulators are trying to supersede federal law, which they cannot do. We will vigorously defend against this illegal action.”
The dispute unfolds throughout a interval of operational change for Underdog. The firm just lately introduced it might exit sports activities betting in North Carolina, efficient Dec. 17, whereas persevering with to supply fantasy contests there. Users had been knowledgeable that core fantasy options would stay out there regardless of the sportsbook closure.
Elsewhere available in the market, a number of different operators licensed in Arizona have introduced or launched prediction market merchandise via partnerships with federally regulated exchanges. Although none of these merchandise are presently dwell in Arizona, the state’s motion in opposition to Underdog indicators a willingness to join licensing choices to associations with entities accused of unlicensed exercise inside its borders.
If finalized, the revocation would make Underdog the primary fantasy sports activities operator to lose a state license over ties to prediction markets, setting a precedent that different regulators and market members at the moment are watching carefully.
