Arizona’s gaming regulator is taking a stance against one of its licensees, Underdog, offering prediction markets.
The Arizona Department of Gaming has provided Underdog with a Notice of Violation and Intent to Revoke the company’s fantasy sports license due to its involvement as a technology service provider for Crypto.com, a CFTC-designated contract market that offers sports-related event contracts in the state.
The notice provides that: (1) Crypto.com’s offering of event contracts in Arizona constitutes illegal sports betting, and (2) via Underdog Predict, Underdog is enabling the sale of event contracts in the United States in partnership with Crypto.com.
Though Underdog Predict does not allow for the buying or selling of event contracts in Arizona, the ADG states that “Underdog makes the sale of event contracts with Crypto plain on the same site on which it advertises other products to Arizona residents.”
Why Arizona would pull the Underdog license
In sum, the ADG provided Underdog with the following basis for revocation:
“ADG has determined that Underdog, by contracting with Crypto, benefitting from Crypto’s services, supporting Crypto’s interests, and providing financial support to Crypto is aiding and abetting Crypto’s illegal conduct in Arizona and providing it with a façade of legitimacy.
“Moreover, and in the same fashion, Underdog’s relationship with Crypto is an association that poses a threat to the public interest of this State. As a result, the Department hereby provides Underdog notice of its intent to revoke [Underdog’s] fantasy sports contest operator license.”
Underdog-Crypto.com affiliation violates regulations
A.R.S. §5-1209 establishes specific reasons why the ADG may revoke, suspend, or deny a license.
The notice cites to A.R.S. §5-1209(A)(2) and (12), which state a license may be revoked if the licensee:
- “knowingly causes, aids, abets, or conspires with another to cause any person to violate any of the laws of this state or the rules of the department”
- “Is a person whose prior activities, criminal record, if any, habits and associations pose a threat to the public interest of this state or to the effective regulation and control of fantasy sports contests, or creates or enhances the dangers of unsuitable, unfair or illegal practices, methods and activities in the conduct of fantasy sports contests, or the carrying on of the business and financial arrangements incidental thereto.”
Next steps for Underdog
Underdog has already stated its intent to oppose the ADG’sdecision. Per A.R.S. §41-1092.03(B), Underdog may appeal the ADG’s revocation of its license “by filing a notice of appeal or request for hearing with the agency within thirty days after receiving the notice,” which must include at least: (i) all information regarding questions of law that are the basis for the appeal; and (ii) all relevant supporting documentation.
Underdog’s position will largely rely upon the arguments currently being addressed in various federal and state courts – namely, that Crypto.com operates as a CFTC-regulated DCM subject to governance under the Commodities Exchange Act and not state law and, therefore, the ADG does not have jurisdiction to police its activity. As the licensee, Underdog will bear the burden of persuading the hearing body that the ADG has acted outside the scope of its rules by punishing Underdog for activity that it does not offer in Arizona and/or otherwise improperly attempted to supersede federal law.
A.R.S. §41-1092.05 states that appealable agency action shall be held within 60 days after notice of appeal is filed, unless (i) otherwise extended upon showing of good cause or agreement by the parties, or (ii) expedited upon showing of extraordinary circumstances. A written decision shall be issued within 20 days, at which time the ADG has 30 days to accept, reject, or modify the hearing body’s decision.
In the meantime, unless Underdog moves for a judicial order allowing it to continue conducting business in the state pending final outcome of its appeal, its license status will not be stayed while the process plays out. Furthermore, the ADG’s actions may constitute grounds for Underdog’s license being suspended or revoked in other states. Notwithstanding, it remains to be seen whether this dispute will be resolved expeditiously or subject to multiple layers of review that may ultimately extend final determination regarding Underdog’s status as a fantasy sports contest operator in Arizona.
