Underdog Surrenders Fantasy Licenses in Seven States to Protect Prediction Market Business

Underdog is surrendering its daily fantasy sports licenses in seven states, choosing to sacrifice its traditional DFS business rather than abandon prediction markets.

The move comes after state regulators told the New York-based company that its federally regulated prediction platform was incompatible with its state-licensed fantasy sports offering.

The company will cease offering fantasy contests in Maryland, Massachusetts, Michigan, Mississippi, New Jersey, Ohio, and Pennsylvania this week, including its popular Best Ball Drafts product.

Underdog founder and CEO Jeremy Levine said Friday (September 4) that regulators in the seven states had effectively forced the company to choose between retaining its fantasy licenses and continuing to offer products regulated by the Commodity Futures Trading Commission (CFTC).

“Those states have taken a legal viewpoint we disagree with: if we offer our CFTC-licensed products we cannot offer fantasy sports in those states,” Levine wrote on X.

“So we had to choose,” he added. “We could keep our fantasy licenses in those states, or surrender the licenses and offer effectively our full experience, minus Drafts.”

Fantasy contests will become unavailable in Mississippi on September 9 and in the other six states on September 10. Existing entries will continue and settle normally, according to Underdog.

Prediction Pivot

Underdog began life in 2020 as a fantasy sports operator but has lately pivoted toward prediction markets.

In July, the company launched its own federally regulated prediction exchange after acquiring a CFTC-designated contract market (DCM) and derivatives clearing organization (DCO) in March.

Underdog previously offered prediction markets through third-party exchanges before launching its own.

The company’s Prediction Picks product will remain available in Maryland, Massachusetts, Mississippi, New Jersey, Ohio, and Pennsylvania after the fantasy withdrawal. Michigan is a notable exception: Underdog currently lists the state, along with Arizona and Nevada, as ineligible for Prediction Picks.

That means Underdog is prepared to relinquish its Michigan fantasy business even though its prediction-market product is currently unavailable there.

State-Federal Battle

The move comes amid a nationwide dispute over whether sports event contracts offered by federally regulated prediction exchanges are subject to state gambling laws.

Prediction-market operators argue their contracts fall under the exclusive jurisdiction of the CFTC and federal commodities law.

State gaming regulators and attorneys general have hit back against that position, contending that sports contracts amount to wagering and can’t bypass state gambling regulations.

DFS was the regulatory workaround and disruptor that challenged conventional sports betting a decade ago. Now prediction markets are disrupting fantasy operators, and Underdog, one of the biggest DFS companies, is willingly giving up DFS licenses to pursue them.

“We hate doing this,” Levine said of abandoning the seven fantasy markets, adding that Underdog would seek to restore Drafts if the regulatory environment changes.

As state and federal regulators clash over jurisdictional boundaries, Underdog’s calculated gamble highlights how aggressively operators are willing to cannibalize legacy business lines to capture the fast-growing prediction market frontier.