Underdog Handed Back Seven Fantasy Licenses, Then Sued Five States. A London Broker Had Already Paid $1.1 Billion for That Answer.

Editor's note: TrueEdge builds odds tools and earns affiliate commissions from licensed sportsbooks. This piece argues a position on prediction-market regulation, and our commercial interest runs toward the sportsbooks. Weigh it accordingly.

On Saturday, September 5, Jeremy Levine posted that Underdog was shutting down Drafts — the snake-draft, best-ball product the company launched in 2020 and built itself on — in Massachusetts, Maryland, Michigan, Mississippi, New Jersey, Pennsylvania and Ohio. The company is surrendering its daily fantasy sports licenses in all seven. Existing drafts finish; no new entries after the NFL season opens Wednesday night.

His explanation was one sentence and it is the most important sentence anyone in this industry has said in a month: "If we offer our CFTC-licensed products we cannot offer fantasy sports in those states."

Then on Tuesday, Underdog sued Ohio, Massachusetts, Wisconsin, New Mexico and Washington in federal district court, seeking permanent injunctions and declaratory judgments on the theory that the Commodity Exchange Act gives the CFTC exclusive jurisdiction over its designated contract market and that state gambling law is preempted as applied to it. "We're licensed by the federal government to offer markets," said Stacie Stern, Underdog's SVP of government affairs. "Do we believe we are right on the law? Yes."

Three days between capitulation and offensive. That is not a company that got cornered. That is a company executing a sequence.

The math that made the choice easy

Levine's own post contains the tell. Drafts, he wrote, "don't get anywhere near the usage of our other offerings." He said it while announcing their death, which is an unusual moment to volunteer that a product is small.

Underdog reported $466 million in net revenue for the twelve months to June 30, 2026, up 21% year over year. It is now the third-largest US prediction-market exchange by trading volume, behind only Kalshi and Robinhood, having launched its own exchange in mid-July. Seven states' worth of best-ball entry fees against that is not a hard trade. It is a rounding error dressed as a sacrifice, and the industry press has largely reported it as a company being forced into a painful decision.

It was a cheap decision. That does not make it a small one, because of who was actually making it.

IG Group bought the answer

On July 30, IG Group Holdings — the London-listed derivatives broker, the CFD and spread-betting house that also owns tastytrade — agreed to acquire Underdog for up to about $1.3 billion. The upfront enterprise value was roughly $1.1 billion: $963 million of equity through 24.1 million new IG shares plus $380 million cash, another $160 million to clear Underdog's debt, and up to about $200 million of earnout tied to net gaming revenue and positive EBITDA. IG's chief executive, Breon Corcoran, said the deal "establishes IG as a leader in U.S. prediction markets" and would "more than double" the group's US revenue.

Read the buyer, not the target. IG Group is not a fantasy-sports company that acquired a derivatives capability. It is a derivatives company that acquired distribution. Its competence, its compliance apparatus, its entire institutional memory is in regulated financial markets. A portfolio of seven state daily-fantasy licenses is, to IG, not an asset — it is a set of jurisdictional hooks that lets state gaming regulators assert authority over a business IG intends to run under a federal one.

So when Massachusetts and Ohio and the rest said pick one, they were not presenting Underdog with a dilemma. They were presenting it with a housekeeping task it had already priced. The earnout is on net gaming revenue, which is the language of the business IG is buying into, and the deal closes late 2026 or early 2027. Handing back the licenses before close removes a live regulatory contingency from a $1.3 billion transaction. Suing five states three days later starts building the record that the remaining hooks are unlawful too.

The number that would falsify this reading is Drafts' actual contribution to that $466 million. Underdog has not disclosed it, IG's announcement did not break it out, and we could not extract text from the RNS on IG's own investor site — the file served there is not machine-readable, and we are not going to characterise a document we could not read. If Drafts turns out to be a materially large share of revenue in those seven states, this was a real cost and our read is wrong.

The states are not being arbitrary, and this is the part our side keeps skipping

Here is the strongest version of the other case.

A daily fantasy license is a bargain. A company applies to a state, submits to its consumer-protection rules, accepts its tax rate, agrees to its dispute process and its self-exclusion registry, and in exchange gets permission to take money from that state's residents on sports outcomes. Massachusetts, Michigan and Ohio are not saying prediction markets are evil. They are saying you cannot hold our license — signalling to our residents that you are supervised by us — while running an economically identical product through a channel where our rules, our tax and our complaint process do not apply. That is not overreach. That is the ordinary condition of holding a license.

And the incentive is exactly what it looks like. Illinois taxes sportsbook adjusted gross receipts at 20% to 40% and charges a per-wager fee on top; its brand-new tax on prediction-market transactions, itself now under three separate federal challenges, was 1.75%. A federal event-contract license is not merely a different regulator. It is a cheaper one, with thinner consumer protection attached, and a company that migrates toward it has improved its margins by shedding obligations to the people it takes money from. Calling that a preemption principle rather than an arbitrage is generous.

That argument is correct on the economics and it still loses on the law, and the reason matters. Congress gave the CFTC exclusive jurisdiction over designated contract markets. It did not carve out an exception for contracts that annoy state gaming boards. If sports event contracts are inside the Commodity Exchange Act's scope — which the Third Circuit held in April and the Ninth Circuit rejected on August 28, which is precisely why New Jersey filed for certiorari on September 2 — then a state cannot condition an unrelated state license on a company declining to exercise a federal one. The remedy for a bad federal rule is a federal fix: the CFTC's own public-interest rulemaking, or Congress. Seven states extracting license surrenders one at a time is fifty-state regulation of a national exchange by attrition, which is the thing preemption exists to prevent.

We think the states will lose this. We also think they are right that the outcome, if they lose, is worse for bettors than the status quo — lower taxes, lighter protections, and a supervisor in Washington with no history of running a self-exclusion registry. Both of those can be true. Pretending otherwise is how this coverage goes bad.

What Wednesday actually tests

The NFL season opens Wednesday night in Seattle, and Underdog's Drafts customers in seven states lose their product at roughly the same moment. Reported cutoffs differ slightly — RotoWire has September 10 in most of the seven and September 9 in Mississippi, while other accounts describe the shutoff as immediate at kickoff. We do not know which is precisely right, and the distinction matters to about a week of best-ball entries and nothing else.

The reaction under Levine's post was not sympathetic. One user's suggestion was that Underdog drop "the stupid prediction markets shit" instead. That comment is the whole industry argument compressed: the customer who liked the fantasy product does not care which agency licenses it, and the company that just got bought for $1.3 billion cares about almost nothing else.

Levine says he has "some ideas about how to get Drafts back to more customers" and that it is too early to commit to anything. Believe the second half.