Underdog has decided to forfeit its licenses to operate daily fantasy sports (DFS) in seven states instead of backing down from prediction markets.

After being informed by state regulators that its federally regulated prediction platform clashed with its state-licensed fantasy sports offering, the company has made this decision.

This week, the company will halt fantasy contests in Maryland, Massachusetts, Michigan, Mississippi, New Jersey, Ohio, and Pennsylvania, including its Best Ball Drafts product.

Underdog’s founder and CEO, Jeremy Levine, stated that the regulators in the seven states essentially gave the company an ultimatum to either keep its fantasy licenses or continue offering products overseen by the Commodity Futures Trading Commission (CFTC).

“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,” Levine wrote on X.

He further added, “So we had to choose. We could keep our fantasy licenses in those states, or surrender the licenses and offer effectively our full experience, minus Drafts.”

Fantasy contests in Mississippi will cease on September 9, and in the other six states on September 10. Existing entries will continue and settle as usual, as per Underdog.

Prediction Pivot

Originally a fantasy sports operator in 2020, Underdog has now shifted its focus towards prediction markets.

The company launched its own federally regulated prediction exchange in July, following the acquisition of a CFTC-designated contract market (DCM) and derivatives clearing organization (DCO) in March.

Previously, Underdog offered prediction markets through third-party exchanges before introducing its own platform.

Even after withdrawing from fantasy contests, Prediction Picks, the company’s product, will remain available in Maryland, Massachusetts, Mississippi, New Jersey, Ohio, and Pennsylvania. However, Michigan stands out as Underdog currently excludes the state, along with Arizona and Nevada, from accessing Prediction Picks.

Although its prediction-market product is unavailable in Michigan, Underdog is willing to relinquish its fantasy business in the state.

State-Federal Battle

This decision comes amidst a nationwide debate over whether sports event contracts offered by federally regulated prediction exchanges are subject to state gambling laws.

A decade ago, DFS challenged traditional sports betting as a regulatory workaround and disruptor. Now, prediction markets are disrupting fantasy operators, leading Underdog, one of the major DFS companies, to willingly give up DFS licenses to pursue this new direction.

“We hate doing this,” Levine expressed regarding abandoning the seven fantasy markets. He also mentioned that Underdog would seek to reintroduce Drafts if the regulatory landscape changes.