On December 5, the Arizona Department of Gaming took a decisive step by issuing a formal notice of violation against Underdog, a company licensed to operate fantasy sports contests in the state since August 23, 2021. This move is part of the department’s intention to revoke Underdog’s license, citing the company’s association with Crypto.com and its involvement in prediction market activities, which have been classified as illegal gambling under Arizona law.
The department’s letter outlined its concerns, stating that Underdog’s partnership with Crypto.com not only benefits from Crypto’s services but also supports its interests, thus providing a facade of legitimacy to what the state regulators deem illegal conduct. The letter emphasized, “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.”
This enforcement action is unprecedented, marking the first instance where a state gaming commission has moved to revoke a fantasy sports license due to ties with prediction markets. While regulators in various states have warned operators about the risks associated with these markets, Arizona is the first to take such concrete action.
Jackie Johnson, Director of the Arizona Department of Gaming, conveyed the agency’s strong stance, highlighting the department’s commitment to safeguarding lawful gaming revenues and maintaining public confidence. “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,” she noted, stressing the department’s readiness to act when necessary.
In response, Underdog has expressed its intent to contest the decision. Nicholas Green, Underdog’s general counsel, argued that Arizona regulators are attempting to overreach their authority, asserting, “Arizona regulators are trying to supersede federal law, which they cannot do. We will vigorously defend against this illegal action.” The company maintains that while it continues to offer fantasy sports contests in Arizona, it has never introduced prediction markets in the state.
The implications of this regulatory action extend beyond Underdog, as it sends a signal to other operators about the state’s strict enforcement approach. Although Underdog is currently the only company to receive such a notice, the Arizona Department of Gaming has clarified its expectations for all license holders to comply with state laws. An ADG spokesperson reiterated that the department anticipates comprehensive adherence to legal standards from all licensees, refusing to speculate on potential actions against other companies.
Interestingly, Crypto.com is not the sole prediction market operator facing scrutiny. In May, Kalshi received a cease-and-desist letter from the ADG, with regulators arguing that there was “no meaningful difference” between sports contract trading and event wagering. This was followed by a broad warning in September to fantasy and sportsbook operators about potential license revocations.
Despite these warnings, several companies maintain partnerships with prediction market entities. PrizePicks continues to collaborate with Kalshi, and Fanatics has an ongoing relationship with Crypto.com. Moreover, Fanatics has recently launched its own prediction market platform, Fanatics Markets, while major players like FanDuel and DraftKings are also gearing up to release their prediction platforms soon.
At a recent National Council of Legislators from Gaming States (NCLGS) Winter Meeting in Puerto Rico, Arizona Office of the Governor Senior Policy Advisor Chris Kotterman noted, “I think the department would look similarly on someone who’s partnering with someone who’s doing the things that we consider to be unlawful in the state of Arizona. But I’m not the director of the department, so I can’t speak to what she might do.”
Underdog’s decision to withdraw from the North Carolina sports betting market further highlights the company’s shifting focus, possibly towards prediction markets. The company informed players that sports betting will no longer be available via its platform in North Carolina starting December 17, yet assured them of continued access to fantasy sports and draft options. This withdrawal follows a similar exit from the Missouri sports betting market, despite recently partnering with the Kansas City Royals for a tethered betting license.
The developments in Arizona reflect a broader national conversation on the legality and regulation of prediction markets, with the state’s actions possibly setting a precedent for others to follow. While Underdog prepares to mount a legal defense, the situation underscores the ongoing tension between innovative gaming models and traditional regulatory frameworks. As the igaming industry evolves, operators and regulators alike must navigate the complex landscape to ensure compliance while fostering innovation.
Sarah Thompson is a seasoned writer specializing in casino gaming and online gambling. With over a decade of experience in the industry, Sarah brings in-depth knowledge and a keen eye for detail to her work at CasinoNoDeposits.com. Her expertise lies in uncovering the latest no deposit bonuses and providing comprehensive reviews of online casinos. Passionate about helping players maximize their gaming experience, Sarah combines her analytical skills with a flair for engaging storytelling.
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