More than six months after Underdog first started offering sports prediction markets, the daily fantasy sports (DFS) operator announced a major acquisition on Monday that will allow it to offer its own regulated prediction market exchange.
Underdog has purchased Aristotle Exchange, a company which runs both a Designated Contract Market (DCM) and a Derivatives Clearing Organization (DCO) under Commodity Futures Trading Commission (CFTC) registration.
Aristotle operates the PredictIt prediction market platform, which ramped up its U.S. operations in the second half of last year with a focus on politics. PredictIt does not offer sports.
Aristotle speaks to Underdog’s predictions philosophy
Underdog has been offering event contract trading on its app since late last summer via a technology partnership with Crypto.com.
In January, it received approval from the National Futures Association (NFA) to operate as a Futures Commission Merchant (FCM), a status which allows it to partner with more CFTC-authorized DCMs to offer event contracts supplied by the market-making firms.
Now, by acquiring a licensed DCM of its own, the operator will have the freedom to expand its prediction markets offering natively on its own platform rather than relying on intermediary agreements with other firms. DCM and DCO registrations are two of the required components needed for companies like Crypto.com, Kalshi and Polymarket to offer event contracts natively on their own platforms without the need for partnerships with other firms.
Levine: ‘Prediction markets are primarily about sports’
While some gaming companies have chosen the partnerships route to get into the sector, such as FanDuel’s deal with CME Group, Fanatics‘ partnership with Crypto.com and PrizePicks‘ collaborations with Kalshi and Polymarket, Underdog is not alone in purchasing a registered DCM. DraftKings bought Railbird last fall, soon after the latter company got CFTC approval, although it has yet to actually integrate that platform, instead starting its DraftKings Predictions offering with contracts from CME and Crypto.com.
Underdog’s announcement of the M&A deal noted that its integrated native exchange will allow customers to access sports event contracts and more.
“We’re in the early innings of what prediction markets can be, especially for sports fans,” said Underdog Chief Executive Officer and Co-Founder Jeremy Levine. “We’ll use this opportunity to bring the same relentless focus on innovation and experience that we’ve always brought to our customers.
“The reality is, prediction markets are primarily about sports,” said Levine in his statement. “No company knows how to engage with sports fans and create products for sports fans better than Underdog.”
Old Underdog, new tricks
Underdog was the first online gaming operator to go live with prediction markets, doing so in early September last year via the Crypto.com collaboration. Since then, it has leaned firmly into prediction markets as a primary operation.
Though it only had a very limited sports betting footprint, it relinquished that in favor of federal predictions, shutting down its existing state-regulated sports betting operations in North Carolina in December and also giving up its license to offer sports wagering in Missouri’s new market, which opened Dec. 1.
It now offers its prediction markets in both of those states, as well as around 30 more.
It has incurred the wrath of some state gaming regulators amid this strategy. The Arizona Department of Gaming (ADG) moved to revoke Underdog’s DFS license as a result of its work with Crypto.com. The ADG previously issued a cease-and-desist notice to the latter firm, before Underdog announced its deal with the financial company. Underdog does not offer predictions in Arizona, per its website.
The announcement of the Aristotle deal came just days after Levien confirmed Underdog had conducted a round of layoffs, which reports suggested amounted to around 125 employees, constituting more than 20% of its workforce. Levine cited the transition from “a state-by-state framework to a national prediction markets platform” as a major factor in those cuts.
