Arizona has moved to revoke Underdog’s fantasy sports license as a result of the operator’s prediction markets partnership with Crypto.com.
Arizona Office of the Governor Senior Policy Advisor Chris Kotterman confirmed at the National Council of Legislators from Gaming States (NCLGS) Winter Meeting in Puerto Rico on Saturday that Arizona Department of Gaming (ADG) Director Jackie Johnson issued a notice of violation and intention to revoke to Underdog on Dec. 5.
“There’s a very clear case that the operator was offering something in Arizona that we consider to be an illegal product,” Kotterman told the room.
Underdog incurs wrath after Crypto.com ignored C&D
Kotterman explained that the ADG issued its notice to Underdog because of its decision to work as a technology partner with Crypto.com, a company that has been ordered out of Arizona but continues to operate in the state.
“We did that because they are partnered with Crypto.com to offer a prediction market product,” he said. “We had previously, in May, sent a cease-and-desist to Crypto.com for offering prediction market products in Arizona in violation of what we believe to be our event wagering statute.
“We warned them, they didn’t leave, then Underdog partnered with them. We asked for information from Underdog about the nature of their relationship. We got that information, and then we decided that they were engaging in conduct that would threaten their license. They partnered with that operator, and that affects their suitability.”
Underdog intends to bite back
Kotterman stressed that approval as a regulated operator is an ongoing evaluation in Arizona, and the state government continues to assess all licensees’ conduct “to make sure that you’re not engaging in activity with people who are unsuitable to be involved in the business.”
He acknowledged that there is a chance that Arizona may be drawn into litigation over the issue, but said that the regulator felt the need to take action to demonstrate that the government is serious about its licensees not engaging in action that it believes violates statutes.
Underdog General Counsel Nicholas Green said in a statement that the company will push back against the ADG decision. “Arizona regulators are trying to supersede federal law, which they cannot do,” he asserted. “We will vigorously defend against this illegal action.”
Will Fanatics and PrizePicks be next on hit list?
At the same time that the ADG sent Crypto.com a C&D in May, it also sent one to Kalshi, opining that there is “no meaningful difference” between sports contract trading and event wagering and ordering both companies to shut down those products in Arizona.
Months later, in September, the ADG sent a letter to DFS and sports betting operators warning them that directly or indirectly facilitating sports prediction markets could place their gaming licenses in jeopardy.
While Underdog is the only licensee to be issued with a license revocation notice in Arizona so far, it is just one of several approved gaming operators in the state that have begun offering, or announced imminent plans to offer, sports contracts in numerous U.S. states. Fellow DFS licensee PrizePicks offers prediction markets via a deal with Kalshi and licensed sportsbook Fanatics works with Crypto.com on Fanatics Markets. Meanwhile, FanDuel and DraftKings are each gearing up to offer sports event contracts.
Should we expect more of those operators to be sent similar notices of violation and revocation?
“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,” Kotterman told media including SBC Americas. “But I’m not the director of the department, so I can’t speak to what she might do.”
Underdog, Fanatics and PrizePicks do not offer event contracts in Arizona, according to their respective websites.
Crypto.com confirmed to SBC Americas that the company stopped offering event contracts in Arizona earlier this month.
Although Johnson wrote in the letter to operators in September that the ADG would take prediction markets participation in other states into account, echoing what several other state regulators have said, the message from Kotterman was that the government is focused on in-state conduct only, for now.
