Underdog Fantasy, one of the nation's leading daily fantasy sports (DFS) operators, has withdrawn all of its contests from New York following a regulatory dispute that resulted in a $17.5 million settlement with the New York State Gaming Commission (NYSGC).
The settlement stems from the gaming commission's determination that Underdog violated the terms of its temporary license by offering contests that weren't authorized under the original permit. Underdog had been operating in New York since 2020, but only acquired a temporary license in December 2022 through its purchase of Synkt Games.
According to regulators, the temporary license required Underdog to maintain the same types of contests that Synkt was offering when it received its license in 2016, without alterations.
"It's a unique, temporary license issue specific only to New York, and not related to any specific game format we offer," explained Nicholas Green, Underdog's General Counsel. "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."
The $17.5 million settlement amount was calculated based on revenue Underdog generated in the state, highlighting the operator's significant presence in the New York market.
The dispute underscores ongoing regulatory challenges in New York's fantasy sports landscape. The state passed legislation to regulate DFS in 2016, but court challenges delayed the formal adoption of regulations until 2024.
"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," Green said. "We disagree with the Commission, but the settlement does provide clarity on New York licensing issues."
NYSGC Chair Brian O'Dwyer framed the settlement as consumer protection: "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."
This marks the second significant enforcement action against a DFS operator in New York this year. In February, the commission fined PrizePicks nearly $15 million for operating without a license, forcing that company to also exit the market.
Currently, 11 licensed "interactive fantasy sports" sites operate in New York, including industry giants DraftKings and FanDuel, along with Yahoo, RealTime Fantasy Sports, and Splash Sports.
Despite the settlement and market exit, Underdog may not be permanently barred from New York. The agreement specifically notes that the company operated in "good faith" and doesn't disqualify Underdog from seeking a permanent fantasy license or other gaming licenses in the state.
"The settlement recognizes that Underdog worked in cooperation with the Commission and operated at all times in a good faith interpretation of state law," Green stated. "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."
Underdog has already submitted an application for a permanent fantasy sports license in New York.
While closing the door in New York, Underdog announced it is simultaneously opening doors elsewhere. The company will launch its Pick'em Champions product in both New Jersey and Delaware by the end of the month.
These peer-to-peer games allow participants to create rosters of two to eight athletes and predict whether they'll perform above or below offered statistical lines.
"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," Green said.
With these additions, Underdog's DFS offerings will be available in 36 states. The company also operates a traditional sportsbook in North Carolina and has plans to enter the Missouri sports betting market.
The settlement highlights ongoing debates about the legal status of various DFS products, particularly newer formats that critics argue blur the line between traditional fantasy sports and sports betting.
New York adopted regulations in October 2023 that prohibit contests "based on proposition betting or contests that have the effect of mimicking proposition betting," which were finalized in June 2024.
State Senator Joseph Addabbo has twice introduced legislation to expand the definition of fantasy sports to include a wider range of games, but these efforts have stalled in committee.