Underdog Surrenders Fantasy Licenses in Seven States: A Strategic Shift Toward Prediction Markets
Underdog Surrenders Fantasy Licenses in Seven States: A Strategic Shift Toward Prediction Markets
Overview: A Defining Moment for Fantasy Sports and Prediction Markets
Underdog Fantasy, a New York-based operator that began as a daily fantasy sports (DFS) platform in 2020, has made a bold and controversial move: it is voluntarily surrendering its DFS licenses in seven U.S. states rather than abandon its rapidly growing prediction market business. This decision, announced by founder and CEO Jeremy Levine on September 4, 2024, marks a pivotal shift in the company’s strategy—and signals a broader clash between state-regulated fantasy sports and federally regulated prediction markets.
The affected states include Maryland, Massachusetts, Michigan, Mississippi, New Jersey, Ohio, and Pennsylvania. In these jurisdictions, Underdog will cease offering all fantasy contests, including its highly popular Best Ball Drafts product. The company’s prediction market offerings, however, will continue in most of these states—with Michigan being a notable exception.
Why Underdog Is Walking Away From DFS Licenses
The Conflict: State vs. Federal Regulation
The core of the issue lies in a legal and regulatory conflict. State regulators in the seven states informed Underdog that its Commodity Futures Trading Commission (CFTC)-regulated prediction platform was incompatible with its state-licensed fantasy sports operations. In other words, the company could not simultaneously operate both under the same corporate umbrella.
Levine explained the situation plainly on X (formerly Twitter): “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. So we had to choose.”
Underdog’s choice was clear: surrender its DFS licenses and focus on prediction markets, which it believes have more long-term potential and are subject to federal, not state, oversight.
The Timeline
- Fantasy contests become unavailable in Mississippi on September 9, 2024.
- All other six states follow on September 10, 2024.
- Existing entries will continue and settle normally—users with active drafts or contests will not lose their money.
Underdog’s Path From DFS to Prediction Markets
A Company Born in Fantasy Sports
Underdog launched in 2020 as a DFS operator, quickly gaining a loyal following for its Best Ball Drafts—a format where players draft teams and the best-performing lineup automatically advances through a season-long tournament. It became one of the largest DFS companies, rivaling giants like DraftKings and FanDuel.
The Pivot to Predictions
In early 2024, Underdog began a strategic pivot toward prediction markets, a fast-growing sector where users wager on the outcome of real-world events—sports games, elections, economic data, and more. These contracts are regulated by the CFTC, not state gambling authorities.
Key milestones in this pivot:
- March 2024: Underdog acquired a CFTC-designated contract market (DCM) and a derivatives clearing organization (DCO), giving it the infrastructure to operate a federally regulated prediction exchange.
- July 2024: The company launched its own prediction exchange, allowing users to trade directly on markets without relying on third parties.
- Current: The Prediction Picks product—where users bet on specific outcomes (e.g., “Will Player X score more than 20 points?”)—is already live in most states, including Maryland, Massachusetts, Mississippi, New Jersey, Ohio, and Pennsylvania.
Michigan: A Curious Exception
Interestingly, Underdog is willing to give up its Michigan DFS business even though its prediction market product is not currently available there. Michigan, along with Arizona and Nevada, is listed as ineligible for Prediction Picks. This underscores how committed the company is to its long-term prediction market vision—even if it means sacrificing current revenue in a state where the replacement product hasn’t launched yet.
The Broader State-Federal Regulatory Battle
What Are Prediction Markets?
Prediction markets allow users to buy and sell contracts based on the probability of future events. For example, a user might buy a contract that pays $1 if a particular NFL team wins the Super Bowl. These contracts are classified as commodities under U.S. law and fall under the exclusive jurisdiction of the CFTC.
The State Pushback
State gaming regulators and attorneys general argue that many of these contracts—especially those tied to sports events—are essentially bets or wagers and should be subject to state gambling laws. They contend that operators like Underdog are attempting to bypass state regulation by claiming federal preemption.
The Two Sides
| Prediction Market Operators | State Regulators |
|---|---|
| Argue CFTC has exclusive jurisdiction under the Commodity Exchange Act | Contend that sports contracts constitute illegal sports betting |
| Federal commodities law preempts state gambling laws | State gambling laws should apply to any product resembling wagering |
| Prediction markets are legitimate hedging and speculation tools | These products are unlicensed gambling targeting consumers |
A National Dispute
This is not an isolated incident. Across the U.S., state and federal regulators are clashing over the boundaries of prediction markets. The outcome of this dispute could reshape the entire legal landscape for both fantasy sports and prediction markets.
What This Means for Underdog Users
Fantasy Sports Players
- If you’re in one of the seven affected states, you can no longer enter new contests in Underdog’s DFS products, including Best Ball Drafts.
- Existing entries will settle as normal—no money is lost.
- Underdog has stated it will reinstate Drafts if the regulatory environment changes, so users may see a return in the future.
Prediction Market Users
- Prediction Picks remains available in most states (except Michigan, Arizona, and Nevada). Users can continue trading on sports outcomes and other events.
- The company is expected to expand availability as it navigates state-by-state regulations.
Industry Implications: A New Frontier or a Legal Minefield?
The Disruption of DFS
Daily fantasy sports emerged about a decade ago as a regulatory workaround—skirting traditional sports betting laws by classifying contests as games of skill. Now, prediction markets are doing the same thing to DFS: challenging its legal basis and forcing operators to choose sides.
Underdog’s Calculated Gamble
By voluntarily surrendering DFS licenses, Underdog is betting that:
- Prediction markets will grow faster than traditional DFS.
- Federal regulation will ultimately prevail over state restrictions.
- The sacrifice is temporary—if the regulatory conflict resolves in favor of federal oversight, the company can re-enter DFS markets or fully focus on prediction products.
Potential Ripple Effects
- Other DFS operators may face similar ultimatums from state regulators.
- The battle could escalate to federal courts, testing the limits of the Commodity Exchange Act.
- If prediction markets win, states may lose significant gambling tax revenue.
Expert Take: What Analysts Are Saying
Industry observers note that Underdog’s move is both strategic and risky. On one hand, prediction markets are attracting massive investment and user interest. On the other, the legal fight is far from settled. “Underdog is the first major DFS company to make this kind of sacrifice,” says a gaming analyst. “Others will be watching closely to see if the bet pays off.”
Conclusion: The Future of Fantasy and Prediction
Underdog’s decision to surrender its DFS licenses in seven states is more than a business pivot—it is a battle line drawn in the sand between state and federal regulators. The company is willing to cannibalize its legacy business to chase what it sees as the next big thing in legal wagering.
As state regulators and federal agencies continue to spar over jurisdiction, Underdog’s gamble may define the regulatory future of both fantasy sports and prediction markets. For now, users in the affected states lose access to Drafts, but gain a clearer picture of where the industry is heading.
Related guides
- $1.35B Mega Millions Winner Drops Lawsuit: The Cost of Anonymity in a Record Jackpot
- $167M Powerball Winner Arrested for Fifth Time: A Cautionary Tale of Sudden Wealth
- $20 Ticket Turns into a $2M Payout in Illinois
- $320M Powerball Hopeful John Cheeks Still Fighting for Website Error Jackpot: A Comprehensive Guide to the Ongoing Legal Battle
- $4.6M Child Modeling Fraudster Blew Stolen Cash on Gambling, Taylor Swift Tickets