Underdog Fantasy found itself at a crossroads in 2023.
The daily fantasy sports operator faced severe regulatory pushback over its pick’em games, where users could stake money on outcomes similar to player prop parlays at licensed sportsbooks.
But as of today, Underdog Fantasy has expanded its reach from 32 states to 35, recently launching in Missouri — the latest state to legalize sports betting. However, the mechanics of its pick’em product have shifted significantly in around half of those states. Underdog now operates player-versus-house contests in 19 states, while introducing a peer-to-peer version, branded Champions, in 16 others
The change in product
The format allows users to compete directly against one another rather than against the house — a distinction regulators often use to determine whether a product qualifies as sports betting.
While less profitable for operators, the shift has enabled Underdog to maintain a presence in more states, while offering a product similar to parlays, which now make up 48% of all sports bets, according to Morgan Stanley.
“The DFS space came under a spotlight in 2023 as regulators examined several game offerings, which included Underdog, but the company exited the uncertainty stronger by launching in three incremental states during that time,” Jordan Bender, a senior equity research analyst at Citizens JMP, said in a recent financial note.
DFS app downloads
Through Week 10 of the NFL season, PrizePicks and Underdog have outpaced every sports betting app not named FanDuel or DraftKings, with more than 1 million downloads apiece, according to Citizens JMP.
Through Week 13, DFS app downloads were up 64% and represented 37% of all sports betting and DFS app downloads combined, according to Citizens JMP.
Underdog Fantasy shifts to peer-to-peer
Some states that issued cease-and-desists to halt the original product, like North Carolina and Massachusetts, have approved the new format. Other states, like Florida and Wyoming, where the legal sports betting lobby urged regulators to act, have allowed peer-to-peer pick’em to persist without further challenge.
“In states that raised questions, we turned to what we do best, product,” Underdog Senior Vice President of Government Affairs and Partnerships Stacie Stern said in a statement. “We worked with regulators to build a new version of our core game that satisfied any concerns, and is even more fun for our fans.”
Others have adopted the model, like fellow DFS operator PrizePicks, which launched its own peer-to-peer game, Arena. Even DraftKings, already licensed for sports betting, debuted a peer-to-peer pick’em product now available in 29 states.
Player vs. house still in key markets
Despite the shifting regulatory landscape, player-versus-house pick’em games remain available in the largest untapped markets for legal sportsbooks, including California, Texas, and Georgia.
Uncertainty about the legal status of those products still persists, particularly in California, where the attorney general is examining whether they constitute unregulated sports betting.
It is unclear whether these companies could face penalties. In New York, for example, PrizePicks recently agreed to a $15 million settlement for offering “purported” fantasy sports contests without a license. The settlement was based on revenue the company generated in the state for over three and a half years.
Sweeps drawing attention from DFS
Meanwhile, another quasi-regulated gaming model is in the spotlight. In the past year, multiple states, including Connecticut, Delaware, and Michigan, have issued cease-and-desist orders to operators offering sports betting or casino products under a sweepstakes model.
The legal gaming industry lobby has labeled them unregulated gambling and called for regulatory crackdowns similar to those targeting pick’em DFS. Supporters argue that sweepstakes offer an entertainment-first approach with reduced financial risk.
In California, tribes that have opposed DFS pick’em games are expanding their focus to sweepstakes operators. Tribal leaders are organizing against both sweepstakes platforms and newer peer-to-peer DFS formats, which they view as threats to their gambling exclusivity.
