Underdog, a leading operator in the fantasy and sports betting industry, will soon introduce sports prediction markets across 16 states, as announced by its founder and CEO Jeremy Levine during an interview with CNBC on Tuesday.
In a strategic move, Underdog has joined forces with Crypto.com Derivatives North America (CDNA), an exchange that is already registered with the Commodity Futures Trading Commission (CFTC). This collaboration aims to leverage CDNA’s expertise in derivatives to innovate within the sports betting landscape.
“Prediction markets are one of the most exciting developments we’ve seen in a long time,” Levine remarked in a company press release. With a bold vision for the future, Levine believes that sports will be central to the evolution of prediction markets, emphasizing that no one understands sports better than Underdog.
The launch comes as state gambling regulators keep a close eye on prediction markets, which some operators view as a potential means to bypass traditional state-by-state sports betting regulations. Companies like Kalshi, which are regulated federally by the CFTC, are able to offer their services in states where sports betting remains illegal, such as California and Texas. Thus, Underdog aims to target its prediction markets in regions where sports betting has not been legalized.
In this innovative offering, instead of traditional wagers, users buy contracts. These contracts pay out if predictions are accurate, creating a dynamic and tradeable market. Through Underdog’s app, users can engage with predictions on a range of sports events, including NFL, college football, NBA, MLB, and other major sports leagues. While CDNA will supply the contracts, Underdog will host them on its proprietary platform, setting a pioneering precedent as the first company to offer fantasy sports, sports betting, and prediction markets within a single app.
Travis McGhee, managing director and global head of capital markets at Crypto.com, expressed enthusiasm about the collaboration. “We are thrilled to partner with Underdog to enhance the sports experience for customers nationwide,” he said. This partnership, he noted, would allow customers to engage with CDNA’s innovative offerings through Underdog’s app.
As Underdog steps into this new arena, it is not alone. The sports prediction market is attracting interest from other major players. Last month, FanDuel announced plans to launch its own sports prediction markets platform, partnering with CME Group for a joint venture. Similarly, DraftKings is exploring prediction markets, as indicated by comments from CEO Jason Robins during a recent earnings call.
While the potential for event trading to circumvent some state regulations exists, it has not gone unnoticed by state regulators. The Ohio Casino Control Commission recently issued a warning to sports betting licensees, indicating that it considers predictions to fall under sports betting. The commission cautioned that offering prediction markets could jeopardize existing sports betting licenses.
Industry analysts are optimistic about the potential growth of US prediction markets, estimating that they could handle several billion dollars annually if widely adopted. However, firm projections remain uncertain due to the ongoing regulatory challenges. Multiple state and federal lawsuits are currently underway to determine whether sports event contracts should be classified as sports betting.
Not everyone is convinced that prediction markets will completely upend the state-regulated sports betting industry. Industry consultant Dustin Gouker expressed his views in his newsletter, The Event Horizon: “I think the hype that all of this is going to displace state-regulated sports betting entirely is a bit overblown,” he wrote. Nonetheless, he acknowledged the appeal of prediction markets in states without legal online sports betting or where competition is sparse.
Gouker also pointed out that the partnership between Underdog and Crypto is just the beginning. “More of these deals are coming, whether you’re ready or not,” he suggested, indicating a possible trend towards increased adoption of prediction markets in the sports betting industry.
As the landscape of sports betting evolves, the introduction of sports prediction markets by Underdog marks a significant step forward. With the partnership with CDNA and a focus on regions without legal sports betting, Underdog is positioned to capture a unique segment of the market. The company’s approach reflects a broader industry trend, suggesting that prediction markets could play a crucial role in the future of sports betting. However, the path forward will likely involve navigating complex regulatory environments as this innovative market continues to develop.
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