Arizona regulators' move to revoke Underdog’s daily fantasy sports license in the state due to its prediction market relationship with Crypto.com could have far-reaching consequences across the industry.
- Arizona regulators moved to revoke Underdog’s DFS license, citing its partnership with Crypto.com and classifying prediction market contracts as illegal gambling.
- The action is the first state effort to penalize a licensed DFS or sportsbook operator for affiliating with a prediction market.
- Major operators continue investing in prediction markets despite rising legal challenges and the prospect of prolonged court battles.
Arizona officials earlier this month moved to strip Underdog of its daily fantasy sports license in the state, writing to the operator that its relationship with Crypto.com, which offers sports event contracts in other states, violated state law. Regulators said sports event contracts represent an illegal form of gambling, and even a partnership with a prediction market was a violation of the license agreement.
Crypto.com had been warned earlier this year to stop offering prediction markets in Arizona, which was the catalyst for the move, Chris Kotterman of the Arizona governor’s office told Covers in an interview last week. Kotterman said Arizona’s action was due to the prior operation within state lines and was unrelated to Underdog and Crypto’s ongoing sports event contract offerings in other states.
Crypto.com stopped offering its prediction market in Arizona after receiving the warning. Underdog has indicated it will appeal the decision to revoke its DFS license.
Conduct within the state? This is about a business relationship we have that doesn’t affect Arizona at all. In fact Arizonans cannot even see PMs in our app. https://t.co/aPwi8s6GNr
— Nicholas Green (@nickggreen) December 13, 2025
In a social media post, Underdog general counsel Nicholas Green wrote his company’s prediction market relationship with Crypto in other states doesn’t pertain to its fantasy sports product in Arizona. He noted Underdog customers in Arizona can’t access sports event contracts through the platform, one of 26 states where the company doesn’t offer its prediction market.
Underdog’s daily fantasy sports offering generated nearly $1.8 billion in entry fees in Arizona in September, the third most of the state’s 14 DFS licensees.
Larger consequences
This is the first major move by any state gaming regulator to try to strip a sports betting or daily fantasy sports license holder’s authorization for affiliating with a prediction market.
Multiple states, including Nevada, have warned sportsbooks that offering sports event contracts, even in other states, could lead to a license revocation. None of the 39 states with legal sports betting have so far moved against a sportsbook.
In Arizona, daily fantasy sports operators have a separate license category and qualifications than sportsbooks, Kotterman said. Arizona officials continue to monitor both DFS and sports operators, but the state is not taking any further action against other licensees in either category. PrizePicks, which also works with prediction market platforms in other states, is Arizona’s highest-grossing DFS provider.
Fanatics, which has an Arizona sports betting license, is also partnered with Crypto.com to power its prediction market platform. Other Arizona sportsbook license holders FanDuel and DraftKings expect to launch their respective prediction markets later this month.
FanDuel and DraftKings both left Nevada after announcing their prediction market launch plans. None of the aforementioned sportsbook operators intend to offer sports event contracts in states where they hold mobile sports betting licenses.
Following the lead of nationwide prediction market originators such as Crypto.com, Kalshi, and Polymarket, many digital-focused U.S. sportsbook operators have invested heavily in prediction market sports event contracts. These contracts are currently regulated by the federal government and are not subject to state gaming regulations.
State gaming regulators in a growing number of states have argued in court that these offerings, which allow users to buy and sell contracts on the outcome of games and individual player statistical performances, are a form of sports betting and must adhere to state regulations and taxation requirements. The prediction markets have continued to push back in public and in court, arguing they are akin to federally regulated commodities trading, not a form of gambling.
Prediction market operators without gaming affiliations such as Kalshi and Polymarket have generated hundreds of millions of dollars in investments in the past year. FanDuel, DraftKings, and Fanatics, the top three U.S. sports betting operators by revenue, have determined the revenue potential and the opportunity cost of falling behind the unaffiliated market operators is too great to wait on the sidelines as the courts consider their legality.
Underdog, another major digital-focused brand, dropped its Missouri sports betting license in November, days before the state’s go-live date. The company now offers sports event contracts in the state.
Legal battles are continuing in more than a half-dozen states. Industry stakeholders believe a final legal resolution won’t be determined for several years, likely by the Supreme Court.
Meanwhile, Arizona’s move against Underdog’s license is the first of what could be many such actions against the operators of the multibillion-dollar regulated daily fantasy sports and sports betting industries.
