Arizona has taken the unprecedented step of removing Underdog’s DFS license over the company’s involvement in prediction markets. 

The Arizona Department of Gaming (ADG) had previously warned licensed companies that doing business with prediction market platforms would risk enforcement action. 

Underdog did not heed the warning and entered a partnership with Crypto.com, allowing users to combine its DFS markets with Crypto.com’s prediction markets. 

The operator offers a range of fantasy sports and esports markets, allowing users to wager on in-game stats for games like Counter-Strike 2 (CS2), Valorant, and League of Legends.

Arizona First State to Follow Through on Threats

In addition to Arizona, seven other states have warned licensed operators against launching prediction markets or partnering with platforms. 

In its letter to licensed operators in September, the ADG said that even offering prediction markets outside the state risked enforcement action. Underdog did not launch its markets with Crypto.com in Arizona. 

However, the ADG followed through on its threats and issued a notice to Underdog earlier this week, stating it is “aiding and abetting Crypto’s illegal conduct in Arizona and providing it with a façade of legitimacy. Moreover, and in the same fashion, Underdog’s relationship with Crypto is an association that poses a threat to the public interest of this State.“

Crypto.com has withdrawn from Arizona, as well as other states that have warned operators over the use of prediction markets. This includes Michigan, Maryland, Massachusetts, Illinois, New Jersey, Nevada, and Ohio.

While no state has forcibly removed an operator’s license until now, FanDuel and DraftKings took the preemptive action of withdrawing their licenses from Nevada as they prepare to launch prediction market platforms. 

PrizePicks and Fanatics Licenses Also At Risk

Analysts at Citizens say that more operators could face the same action as Underdog, notably PrizePicks and Fanatics. 

Fanatics holds a gaming license in the state, but has launched its own prediction market platform, Fanatics Markets. 

PrizePicks, meanwhile, has partnered with both Kalshi and Polymarket, launching markets with the former for now. Like Underdog, PrizePicks holds a DFS license in Arizona. 

The Compliance and More substack quoted analysts at Citizens as stating, “We do not believe the Underdog/Crypto.com relationship is unique in the sense that regulators went after this platform for a certain reason. Rather, it is only a matter of time before Arizona strips the licenses of other operators in the state.”

The analysts added, “The two major companies we believe this will impact are Fanatics, with a high-single-digit handle market share in Arizona (gaming license), and PrizePicks (fantasy license).”

FanDuel and DraftKings, also licensed in Arizona, are not believed to be at risk of losing their licenses, for now. 

However, the action in Arizona could set a precedent for other states to follow as they attempt to address the emergence of prediction markets.