Underdog Fantasy, a prominent player in the Daily Fantasy Sports (DFS) space, has ceased operations in New York after reaching a $17.5 million settlement with state regulators. The popular platform will withdraw its draft and pick’em contests from the Empire State following allegations of offering fantasy games beyond its legal authorization. Despite this setback, Underdog has already applied for a permanent license and plans to return to the New York market as soon as possible.
The Settlement Details and Regulatory Findings
The agreement between Underdog Fantasy and the New York State Gaming Commission (NYSGC) was announced on March 15, 2025, concluding an investigation into the company’s operations in the state. According to the settlement, Underdog will make 12 installment payments beginning April 1, with the final payment scheduled for January 1, 2028. The substantial fine was calculated based on revenue Underdog generated in New York since beginning operations there in 2020.
Regulators determined that while Underdog operated in “good faith,” the company had violated specific terms related to its temporary license. The NYSGC found that Underdog was offering fantasy sports games through its subsidiary that weren’t aligned with New York’s legal requirements for such contests.
NYSGC chair Brian O’Dwyer stated:
This settlement is another example of the Gaming Commission looking out for the gaming public. We encourage fantasy sports players to play only through permitted or registered operators that are subject to our comprehensive regulations that protect New Yorkers.
Understanding the Dispute: Temporary Licenses and Acquisition Complications
The regulatory issue stems from Underdog’s acquisition of Synkt Games in December 2022. Through this purchase, Underdog inherited Synkt’s temporary interactive fantasy sports license, which had been issued back in 2016. However, the commission determined that this temporary license didn’t cover the types of games Underdog subsequently offered to New York customers.
At the heart of the disagreement is the NYSGC’s interpretation that temporary license holders cannot alter their DFS game offerings from what was available when the original license was issued. Since Underdog’s “Pick’em” and “Draft” contests didn’t exist when Synkt secured its license in 2015, regulators deemed these games unauthorized under the temporary permit framework.
Nicholas Green, Underdog’s General Counsel, explained:
It’s a unique, temporary license issue specific only to New York, and not related to any specific game format we offer. Any fantasy game created after 2015, no matter the format, is not permitted under the commission’s interpretation of what games a temporary permitholder, like Underdog, can and cannot offer.
Underdog’s Response and Future Plans
While disagreeing with the commission’s interpretation, Underdog opted for settlement rather than pursuing lengthy litigation. The company emphasized that the settlement acknowledges their cooperation with regulators and good-faith operations throughout.
“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,” Green stated. Underdog has already applied for a permanent fantasy sports license in New York, potentially allowing them to reintroduce their full product suite to the market.
Green also noted that the size of the fine “speaks to the popularity of our games” in New York, as the settlement amount directly reflected the company’s revenue in the state. This suggests Underdog had built a substantial customer base in the Empire State before the regulatory action.
Precedent Setting: Comparing With Other Regulatory Actions
Underdog isn’t the first DFS operator to face scrutiny in New York. In February 2024, PrizePicks was fined nearly $15 million for operating without a license. PrizePicks agreed to terminate its for-money contest products in New York effective February 14, 2024, after regulators determined the company had violated state law.
Like Underdog, PrizePicks claimed it operated with a “good-faith belief” that it was compliant with state regulations. That company has also signaled its intent to pursue proper licensing for its peer-to-peer product in New York.
A PrizePicks spokesperson told ESPN:
As safer, skill-based DFS contests like ours rise in popularity, we will work constructively with policymakers on thoughtful legislation that allows New Yorkers to play the contests they love, ensure strong consumer safeguards, and generates tax revenue for the state.
These high-profile enforcement actions highlight New York’s increasingly strict approach to fantasy sports regulation, particularly regarding the distinction between peer-to-peer fantasy contests and prop-style betting products that some regulators view as disguised sports betting operations.
New York’s Restricted Fantasy Sports Environment
The regulatory landscape for DFS in New York has been characterized by uncertainty for nearly a decade. Green pointed out that this murky environment has restricted competition, allowing only a few “legacy operators” like DraftKings and FanDuel to enjoy definitive regulatory approval.
The state’s approach differs significantly from others, with its strict interpretation of a temporary licensing system established following 2016 legislation that explicitly legalized fantasy sports. New York requires companies operating under temporary permits to maintain essentially the same product offerings that existed when the permit was issued—a requirement that becomes increasingly problematic as the industry evolves and new game formats emerge.
This regulatory stance potentially limits innovation in the New York DFS market and creates barriers to entry for newer operators with modern product offerings. Industry observers note that this approach may ultimately hurt New York consumers by limiting their access to the full range of fantasy sports products available in other states.
Expansion Despite Setbacks
While the New York exit represents a significant blow for Underdog, the company is actively pursuing growth opportunities elsewhere. Concurrent with the New York settlement announcement, Underdog revealed plans to launch its peer-to-peer pick’em fantasy product in New Jersey and Delaware by the end of March 2025.
These expansion efforts align with Underdog’s broader strategy to grow its geographical footprint while navigating the complex patchwork of state regulations governing fantasy sports. The company has demonstrated flexibility in adapting its business model to comply with different regulatory frameworks across the country.
The Peer-to-Peer Champions Strategy
In 16 states, Underdog offers a peer-to-peer version of its games under the “Champions” brand. This model differs from traditional DFS formats where players effectively compete against the house. Instead, the peer-to-peer approach has players competing directly against each other, with the operator taking a commission rather than having a direct stake in game outcomes.
While this peer-to-peer model may generate less revenue than traditional formats, it has proven crucial for Underdog’s expansion efforts. Many states have more favorable regulatory treatment for peer-to-peer fantasy contests, viewing them as games of skill rather than gambling activities.
The Champions product represents Underdog’s strategic adaptation to regulatory constraints—maintaining presence in markets where traditional DFS formats might face legal challenges while still providing engaging experiences for players.
The Future of DFS Regulation in the Digital Asset Era
The Underdog case illustrates the ongoing challenges facing fantasy sports operators as they navigate inconsistent regulatory frameworks across different states. These challenges become even more complex as cryptocurrency and blockchain technology enter the gambling space.
According to recent data, 43% of gamblers have registered with Bitcoin casinos since 2022, with Ethereum and Tether ranking as the most preferred gambling tokens. This digital transformation is forcing regulators everywhere to develop new frameworks that address both traditional gambling concerns and the unique aspects of crypto-based wagering.
While the United Kingdom permits licensed operators to accept crypto deposits with proper anti-money laundering protocols, the United States maintains a state-by-state approach that creates a fragmented regulatory landscape. Malta has emerged as a global hub for crypto gambling operations, establishing a Blockchain Sandbox Framework that allows operators to test crypto gambling products in a controlled environment.
For DFS operators specifically, this evolving landscape presents both opportunities and risks. As states develop more comprehensive regulations around digital assets in gambling, DFS platforms may find new avenues for product innovation—though they must remain vigilant about compliance with jurisdiction-specific requirements that may not have anticipated these technological advancements.
Underdog Fantasy’s temporary exit from New York represents a significant development in the evolving regulatory landscape for daily fantasy sports. While the $17.5 million settlement and withdrawal from one of the nation’s largest markets certainly impacts the company’s immediate prospects, Underdog appears positioned to weather this setback through expansion in other states and adaptation of its business model.
The company’s efforts to secure a permanent license in New York signal its commitment to returning to the Empire State with full regulatory compliance. Meanwhile, its continued expansion into markets like New Jersey and Delaware demonstrates a resilient business strategy.
For New York players, the departure of yet another fantasy sports operator further limits their options in an already restricted marketplace. Whether Underdog succeeds in its bid for a permanent license—and how quickly that might happen—remains to be seen, but the company’s cooperative approach with regulators may improve its chances of eventual return to New York.
Related News
