Underdog departs New York and pays $17.5m in major settlement agreement
DFS operator winds down operations in the Empire State after the regulator alleges company offered interactive fantasy sports games outside of its remit
Underdog Fantasy is shuttering operations in New York after reaching a $17.5m (£13.5m) settlement with the New York State Gaming Commission (NYSGC).
As part of the agreement with the NYSGC, Underdog has withdrawn all fantasy draft and pick‘em products from the Empire State as of 14 March.
The exit centres around claims that Underdog had offered DFS contests without the correct licence, with the operator claiming it was able to remain live in New York via its subsidiary Synkt Games, which held a temporary interactive fantasy sports (IFS) licence.
Underdog has disagreed with the regulator on the topic, adding that the temporary licence was sufficent because the NYSGC “has not yet issued permanent fantasy sports licences to existing companies”.
The operator first launched in New York in July 2020, though went without a licence until December 2022, the time of its acquisition of Synkt, at which point it secured an IFS licence, which Synkt had been in possession of since 2016.
The NYSGC has argued that the DFS games Underdog has been offering in New York lie outside of the reach of an IFS licence, and that between 2020 and 2022, the firm was operating without an IFS licence at all.
As noted in the settlement, the regulator said: “Since 22 December 2022, Underdog Fantasy has been offering some IFS contests within the meaning of the terms and conditions set forth in a temporary permit the Commission issued to Synkt and has been offering some IFS contests that are not within the meaning of the terms and conditions set forth in a temporary permit the Commission issued to Synkt.”
The operator’s draft product aligns with a traditional DFS game format, with users building teams and squads of sports stars to compete for points based on performance.
Underdog’s pick’em format is essentially a player prop-based contest, with users choosing to hit either the under or over on specific actions.
The settlement fee is based on the amount of revenue Underdog generated in New York since 2020, while the NYSGC has acknowledged that the firm operated in “good faith”.
The operator has noted its absence in New York is expected to be temporary, given it has lodged an application for a permanent licence that the regulator is expected to review as part of the settlement.
Nicholas Green, Underdog’s general counsel, explained: “It’s a unique, temporary licence 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 permit holder, like Underdog, can and cannot offer.
“The high fine amount speaks to the popularity of our games, as the settlement was calculated based on our revenue in New York.”
Green continued, adding that despite Underdog’s withdrawal from the state, the decision does offer more “clarity” on New York’s stance regarding DFS operations.
“For nearly a decade, fantasy sports in New York has operated in regulatory uncertainty, including licensing delays limiting consumers’ choices to only a couple of legacy operators.
“We disagree with the Commission, but the settlement does provide clarity on New York licensing issues. The settlement recognises that Underdog worked in cooperation with the Commission and operated at all times in a good faith interpretation of state law.
“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.”
NYSGC chair Brian O’Dwyer said: “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.”
Underdog is not the first DFS operator to face challenges with the NYSGC. Last year, PrizePicks left the market, after paying a $15m settlement.
At the time of writing, there are 11 licensed IFS sites in New York, including DraftKings, FanDuel and Yahoo.
Though Underdog has departed New York, the operator has gone live in New Jersey and Delaware, taking the total amount of states it offers pick‘em games to 36, while it also operates a sportsbook in North Carolina.
Green remarked: “New Jersey and Delaware have been at the forefront of modern sports gaming regulation, and bringing our pick‘em champions game to those states is yet another endorsement from highly respected regulatory bodies of the product we built, which much of the industry has now replicated.”