Arizona regulators have initiated formal steps that could end Underdog’s authorization to operate daily fantasy sports contests in the state, marking a first-of-its-kind enforcement action tied to prediction markets. The Arizona Department of Gaming (ADG) notified the company on Dec. 5 that it intends to revoke Underdog’s fantasy sports contest operator license, citing the operator’s business relationship with Crypto.com and the offering of sports event contracts that state officials classify as illegal gambling activity.

Regulatory Findings Tied to Crypto.com Relationship

Underdog has held its Arizona fantasy sports license since Aug. 23, 2021. While the company does not offer its prediction market products in Arizona, regulators concluded that its partnership with Crypto.com connects it to unlicensed activity occurring within the state. The department’s notice argues that Underdog’s role extends beyond a passive relationship and instead contributes to conduct that undermines Arizona’s gaming laws and regulatory framework.

In a notice obtained through a public records request, the ADG outlined its position that Underdog’s partnership with Crypto.com amounts to support for unlawful gaming. The department wrote that it had determined Underdog was directly aiding Crypto.com’s operations in Arizona, despite the state having previously ordered the exchange to stop offering sports event contracts.

“ADG has determined that Underdog, by contracting with Crypto, benefitting from Crypto’s services, supporting Crypto’s interests, and providing financial support to Crypto 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. As a result, the Department hereby provides Underdog notice of its intent to revoke fantasy sports contest operator license FS200008.”

State officials have emphasized that the issue stems from activity taking place inside Arizona. Senior policy advisor Chris Kotterman from the Arizona governor’s office explained that Crypto.com continued to offer prediction market products after receiving a cease-and-desist order earlier this year, and that Underdog’s subsequent partnership raised suitability concerns.

“There’s a very clear case that the operator was offering something in Arizona that we consider to be an illegal product,” Kotterman said during remarks at the National Council of Legislators from Gaming States Winter Meeting.

He added that the department sought information from Underdog about the nature of its relationship with Crypto.com before deciding that the arrangement posed a risk to its license.

Warnings to Licensees and Enforcement Stance

The ADG’s action follows a series of warnings issued throughout 2024. In May, the department sent cease-and-desist letters to Crypto.com, Kalshi, and Robinhood, asserting that their sports event contracts violated Arizona’s event wagering statutes. In September, the regulator extended its messaging to licensed sports betting and fantasy sports operators, cautioning that partnering with prediction market providers could jeopardize their approval to operate.

In that September correspondence, the department stated that it would consider both direct and indirect involvement with unlicensed event contracts when assessing a licensee’s ongoing suitability. The message reinforced that licensure in Arizona remains subject to continuous review rather than a one-time approval.

According to Sports Betting Dime, Arizona Department of Gaming Director Jackie Johnson underscored that approach in comments addressing the Underdog matter. “The Arizona Department of Gaming is committed to thoroughly investigating and evaluating the suitability of our licensees that maintain relationships with operators conducting illegal, unlicensed gaming activity in Arizona. When unsuitable conduct is occurring, the department will take enforcement action consistent with its statutory authority to protect consumers, preserve lawful gaming revenues to the state and maintain public confidence in Arizona’s regulatory framework.”

While Underdog is currently the only operator to receive a notice of intent to revoke, officials have indicated that similar conduct by other licensees would face the same scrutiny. Kotterman noted that the department would view comparable partnerships in the same way, though he stopped short of predicting further actions.

Underdog has 30 days from the Dec. 5 notice to request a formal hearing or appeal. The company has confirmed that it plans to challenge the regulator’s decision. General counsel Nicholas Green said the company believes the state is overstepping its authority. “Arizona regulators are trying to supersede federal law, which they cannot do. We will vigorously defend against this illegal action.”

The dispute unfolds during a period of operational change for Underdog. The company recently announced it would exit sports betting in North Carolina, effective Dec. 17, while continuing to offer fantasy contests there. Users were informed that core fantasy features would remain available despite the sportsbook closure.

Elsewhere in the market, several other operators licensed in Arizona have announced or launched prediction market products through partnerships with federally regulated exchanges. Although none of those products are currently live in Arizona, the state’s action against Underdog signals a willingness to connect licensing decisions to associations with entities accused of unlicensed activity within its borders.

If finalized, the revocation would make Underdog the first fantasy sports operator to lose a state license over ties to prediction markets, setting a precedent that other regulators and market participants are now watching closely.