Arizona regulators have initiated formal steps that might finish Underdog’s authorization to function each day fantasy sports activities contests within the state, marking a first-of-its-kind enforcement motion tied to prediction markets. The Arizona Division 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. Whereas the corporate doesn’t provide 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 position 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 data 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 straight aiding Crypto.com’s operations in Arizona, regardless of the state having beforehand ordered the change to cease providing sports activities occasion contracts.
“ADG has decided that Underdog, by contracting with Crypto, benefitting from Crypto’s providers, supporting Crypto’s pursuits, and offering monetary assist to Crypto is aiding and abetting Crypto’s unlawful conduct in Arizona and offering it with a façade of legitimacy. Furthermore, and in the identical style, Underdog’s relationship with Crypto is an affiliation that poses a menace to the general public curiosity of this State. In consequence, the Division hereby supplies Underdog discover of its intent to revoke fantasy sports activities contest operator license FS200008.”
State officers have emphasised that the problem stems from exercise happening 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 really clear case that the operator was providing one thing in Arizona that we think about to be an unlawful product,” Kotterman mentioned throughout remarks on the Nationwide Council of Legislators from Gaming States Winter Assembly.
He added that the division sought info from Underdog concerning the nature 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 sequence of warnings issued all through 2024. In Could, 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 said that it might think about 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 overview moderately than a one-time approval.
In accordance with Sports activities Betting Dime, Arizona Division of Gaming Director Jackie Johnson underscored that strategy in feedback addressing the Underdog matter. “The Arizona Division of Gaming is dedicated to completely investigating and evaluating the suitability of our licensees that preserve relationships with operators conducting unlawful, unlicensed gaming exercise in Arizona. When unsuitable conduct is going on, the division will take enforcement motion per its statutory authority to guard customers, protect lawful gaming revenues to the state and preserve public confidence in Arizona’s regulatory framework.”
Whereas Underdog is at the moment the one operator to obtain a discover of intent to revoke, officers have indicated that comparable conduct by different licensees would face the identical scrutiny. Kotterman famous that the division would view comparable partnerships in the identical method, 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 enchantment. The corporate has confirmed that it plans to problem the regulator’s choice. Basic counsel Nicholas Inexperienced mentioned the corporate believes the state is overstepping its authority. “Arizona regulators try to supersede federal legislation, which they can’t do. We’ll vigorously defend towards this unlawful motion.”
The dispute unfolds throughout a interval of operational change for Underdog. The corporate not too long ago introduced it might exit sports activities betting in North Carolina, efficient Dec. 17, whereas persevering with to supply fantasy contests there. Customers have been knowledgeable that core fantasy options would stay obtainable 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. Though none of these merchandise are at the moment dwell in Arizona, the state’s motion towards Underdog indicators a willingness to attach 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 individuals at the moment are watching intently.
