Arizona's gaming regulatory body recently showed a "red card" to fantasy sports operator Underdog. On December 5th, the Arizona Department of Gaming (ADG) formally notified Underdog of its intention to revoke its fantasy sports operator license in the state, due to the company's partnership with cryptocurrency exchange Crypto.com, which indirectly supported the latter's provision of sports event contracts deemed illegal within the state. This is the first time in US state regulation that a licensed operator's compliance issues within its "circle of friends" have been escalated to the severity of license revocation.
Regulatory accusation: Cooperation as "aiding and abetting" illegal activities
According to the notice issued by the ADG, the regulatory body considers Underdog's partnership with Crypto.com far more than a simple business relationship. The notice harshly states that Underdog, through contractual agreements, benefiting from Crypto.com's services, supporting its interests, and providing financial support, "assisted and abetted Crypto's illegal activities in Arizona, and provided a guise of legality." In plain terms, the regulator believes this partnership cloaked illegal activities with a veneer of compliance.
A key background is that prediction market products offered by platforms like Crypto.com, Kalshi, and others have been explicitly defined as illegal sports betting in Arizona. Although Underdog's own prediction market has not launched in Arizona, its partner's crossing of the line has severely questioned Underdog's "suitability."
The logic behind license revocation: Ongoing review and "guilt by association" risks
This incident was not a sudden attack. The ADG had issued multiple warnings in 2024. In May, the department issued a cease and desist order to Crypto.com, Kalshi, and Robinhood. In September, it expanded the warning to all licensed sports betting and fantasy sports operators, clearly stating that cooperation with prediction market providers could jeopardize their operating licenses.
ADG Director Jackie Johnson emphasized the regulatory stance: "The Arizona Department of Gaming is committed to thoroughly investigating and assessing the ongoing suitability of those licensed operators who maintain relationships with operators engaged in illegal, unlicensed gambling activities in Arizona." This means that in Arizona, obtaining a license is not a one-time affair; the regulatory body conducts ongoing reviews. Even if an operator's own business is compliant, too close an association with "problem partners" could lead to "guilt by association."
Industry impact and company pushback: A battle over regulatory boundaries
If the license is ultimately revoked, Underdog will become the first fantasy sports operator in the US to lose a state license due to its association with prediction markets, potentially setting a precedent for other state regulatory bodies. Currently, Underdog has confirmed it will challenge this decision. The company's Chief Legal Officer, Nicholas Green, responded strongly: "The Arizona regulatory body is attempting to exceed federal law, which they have no right to do. We will vigorously defend against this unlawful action."
This controversy occurs just as Underdog is making strategic adjustments. The company recently announced it will shut down its sports betting business in North Carolina on December 17th to focus on fantasy sports and prediction markets. Arizona's actions indicate that state regulatory bodies are willing and able to link license decisions to "problem associates" within their jurisdiction, regardless of whether the direct business is operated by the licensee itself. This undoubtedly serves as a warning to all operators planning to cooperate with prediction market platforms or cryptocurrency exchanges. For more global gambling regulatory updates and in-depth analysis, continue to follow the PASA official website.
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