Underdog Exits New York amid Regulatory Scrutiny

Daily Fantasy Sports (DFS) operator Underdog Fantasy has agreed to a $17.5 million settlement with the New York State Gaming Commission (NYSGC). The operator will withdraw its drafts and pick’em games from the state market after contending with allegations of unlawful operations. Despite this setback, the company plans to return to the Empire State and has applied for a permanent license.

The Company Cooperated with the Investigation

The settlement, which was made public on Friday, follows an NYSGC investigation that found Underdog used its temporarily licensed subsidiary, Synkt, to offer DFS contests not permitted under New York law. While the company denied any wrongdoing and disagreed with the regulator’s interpretation of the relevant statutes, it opted to avoid a protracted legal battle by pulling its offerings and paying the fine.

We encourage fantasy sports players to play only through permitted or registered operators that are subject to our comprehensive regulations that protect New Yorkers.

Brian O’Dwyer, NYSGC Commission chair 

Underdog has defended its position by pointing out that New York’s DFS industry has been shrouded in regulatory uncertainties for nearly a decade. Underdog’s general counsel, Nicholas Green, noted that the dispute revolved around licensing rules rather than specific game offerings. He added that the sum of the fine reflected the company’s popularity among New Yorkers.

We look forward to offering all of our contests again to New Yorkers, and we are working with the commission to do so as soon as possible.

Nicholas Green, Underdog general counsel

Despite Underdog’s decision to temporarily withdraw from New York, the operator has already laid the groundwork for its return by applying for a permanent fantasy sports license in the Empire State. The company’s decision to cooperate with the state regulator should hopefully bolster its chances to receive the green light and resume operations in one of its most profitable jurisdictions.

Underdog Maintains Its Expansion Policy

New York’s murky DFS regulatory environment means only legacy operators like DraftKings and FanDuel enjoy definitive regulatory approval, restricting competition. Underdog is not the first such company to face legal trouble in the state. February 2024 saw PrizePicks suffer a $15 million fine for similar infractions, reinforcing New York’s strict stance on unlicensed DFS activity.

While withdrawing from New York marks a significant setback for Underdog, the operator is accelerating its expansion elsewhere. The company said it would roll out its Pick’em Champions product in New Jersey and Delaware by the end of March, aligning with its broader ambitions to grow its business while complying with local regulations.

Underdog has also adjusted its business model across different states to remain aligned with varying regulatory frameworks. In 16 states, it offers a peer-to-peer version of its games under the Champions brand. While somewhat less lucrative than traditional player-versus-house games, this model has been pivotal in propelling the company’s US expansion in the nation’s constantly evolving regulatory landscape.