Underdog Debuts Prediction Market on In-House Exchange

Underdog, the sports gaming company that disrupted daily fantasy sports (DFS), today launched a wholly-owned prediction market exchange, meaning the company can control more of the economics related to the trading of event contracts.

The announcement arrives about four months after the gaming operator announced the acquisitions of Aristotle Exchange DCM, Inc. and Aristotle Exchange DCO — moves that paved the way for Underdog to feature federally regulated prediction markets. The Aristotle entities were a Designated Contract Market (DCM) and a Derivatives Clearing Organization (DCO) regulated by the Commodity Futures Trading Commission (CFTC).

CFTC regulation is essential for companies like Underdog because that entity oversees prediction markets in this country.

Vertical Integration All the Rage in Prediction Markets

Last September, Underdog launched its prediction market through a partnership with Crypto.com, becoming the first regulated DFS or sportsbook operator to join the prediction market party. In the following months, the company inked other deals with yes/no exchanges.

That model has been employed by other gaming and financial services companies in the prediction market space, but it’s one that could go by the wayside as more operators see value in vertical integration. That movement is already afoot. As just one example, prior to the Underdog news, DraftKings (NASDAQ: DKNG) launched its DKeX exchange, giving it greater economic control over transactions on DraftKings Predictions.

In addition to possessing the DCM and DCO permits, privately held Underdog “is also a registered Futures Commission Merchant (FCM), making it the first sports company with the complete prediction market license stack.”

“Now with our own exchange, we’re going to unlock so much for more sports fans. Prediction markets are largely about sports, and Underdog is the best at sports,” said CEO and co-founder Jeremy Levine in the statement.

Underdog Already a Prediction Market Force

Given its expertise and history, Underdog makes for a logical purveyor of sports event contracts and other yes/no derivatives. Perhaps surprising some industry observers, the company is quietly cobbling enviable positioning in the space.

Since last September, Underdog’s notional prediction market volume is nearly $6.5 billion, good for third among U.S. operators and putting the company ahead of some well-known rivals.

Underdog’s prediction market is not available in 13 U.S. jurisdictions, including Nevada and Washington, D.C.