Arizona Department of Gaming To Revoke Underdog’s Fantasy Sports License Due to Predictions Market Involvement

• The Arizona Department of Gaming notified Underdog on Dec. 5 of its intent to revoke the company’s fantasy sports contest license
• The decision stems from Underdog’s partnership with Crypto.com and its recent prediction market offerings
• Underdog will have the opportunity to appeal the decision

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The Arizona Department of Gaming has notified Underdog that it intends to revoke the gaming company’s fantasy sports contest operator license due to its partnership with Crypto.com and its prediction market offerings across 24 states.

In an email obtained by Sports Betting Dime through a public records request, the Arizona Department of Gaming notified Underdog on Dec. 5 of its intention to revoke the company’s fantasy sports contest operator license. It classifies Crypto.com’s sports event contract offerings as “illegal gambling in Arizona.”

Underdog has held a fantasy sports contest operator license in the state since Aug. 23, 2021.

“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,” a member of the Arizona Department of Gaming wrote in the Dec. 5 notice.

Underdog to Defend Against ‘Illegal Action’

This is the first sports betting or fantasy sports license to be revoked by a state gaming commission due to a gaming company’s involvement in the predictions market. Several state gaming regulatory bodies have warned licensees to not get involved in the prediction markets, or potentially put their licenses at risk when evaluated.

Arizona Department of Gaming Director Jackie Johnson told Sports Betting Dime that the department is committed to investigating and evaluating suitability for all its licensees.

“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,” Johnson told Sports Betting Dime.

The Arizona Department of Gaming has so far only notified Underdog of its intention to revoke its gaming license. PrizePicks, an Arizona licensed fantasy sports operator, and Fanatics Sportsbook, an Arizona licensed sports betting operator, both offer, or are partnered with companies that offer, sports event contracts throughout the U.S.

When asked if other fantasy sports or sports betting licensees would receive notices of intent to revoke their licenses, an Arizona Department of Gaming spokesperson told Sports Betting Dime the department expects “all licensees to follow the law,” but does not comment on potential enforcement matters.

“The department takes its responsibility to regulate gaming in Arizona seriously and regularly evaluates licensee conduct to ensure compliance as part of its regulatory duties. As outlined in previous communications with licensees, we expect all licensees to follow the law. Beyond that, the department does not comment on potential enforcement matters,” the spokesperson said.

Underdog has 30 days from Dec. 5 to request a notice of appeal or a formal hearing with the department. Legal counsel for Underdog told Sports Betting Dime the company will vigorously oppose the decision.

“Arizona regulators are trying to supersede federal law, which they cannot do. We will vigorously defend against this illegal action,” Nicholas Green, general counsel for Underdog, told Sports Betting Dime.

Underdog still lists Arizona as live for its “champions” and “draft” fantasy sports contests. Underdog has never offered its predictions markets in the state.

Underdog Launched Prediction Markets in September

In May, the Arizona Department of Gaming issued cease-and-desist notices to Crypto.com, Kalshi, and Robinhood for their sports event contracts in the state, qualifying the contracts as illegal gambling and claiming the companies were skirting gaming regulatory requirements in Arizona.

Additionally, the department warned its licensed sports betting and fantasy sports operators in September to not partner with companies offering sports event contracts, or to offer the contracts themselves. In a letter sent to Underdog legal counsel on Sept. 15, the department warned the company to not offer, enable, or sell contracts in the state through a Designated Contract Market or Futures Commission Merchant.

“If an Arizona operator chooses to offer, enable, or sell event contracts to persons in this state through their own DCM or FCM (or those under common ownership or operated by a related entity) without a license, or decides to associate, coordinate, or otherwise partner directly or indirectly with persons or entities offering or facilitating the offering, enabling, or sale of event contracts in Arizona without a license, the Department will consider that conduct as it evaluates the continued suitability for that person or entity to maintain a license,” the department warned.

Underdog launched its prediction market offerings in early September after announcing a partnership with Crypto.com. The partnership enabled Underdog customers to trade and purchase sports event contracts across all major sports leagues, including the NFL and college football, the first of its kind between a CFTC-registered exchange and a gaming company.

The Arizona Department of Gaming concluded Underdog continued to “enable the sale of event contracts in the United State in partnership with Crypto (and related entities)” in more than 20 states throughout the U.S. and Washington, D.C.

Busy Week for Underdog

Underdog also exited North Carolina earlier this week, announcing it would cease its sports betting offerings to focus on its prediction markets. It continues to offer its daily fantasy sports markets in the state.

Underdog this week notified its North Carolina sports betting customers of the Dec. 16 closure.

“We wanted to let you know about an upcoming change in North Carolina: Starting December 17, sports betting will no longer be available via the Underdog platform. Don’t worry. Underdog isn’t going anywhere. You’ll still be able to make fantasy picks, play drafts, and enjoy everything else you love about the app using the same credentials as before,” the notification informed users.