Underdog Purchases Clearinghouse, Derivatives Exchange from Aristotle

• Acquisition paves way for gaming company to directly list event contracts, including sports
• Aristotle runs the Predictit political predictions market
• Buyer says deal allows it to operate across the US

Underdog is acquiring Aristotle Exchange DCM, Inc. and Aristotle Exchange DCO, setting the stage for the gaming company to offer federally regulated prediction markets at a national scale.

The targets are Designated Contract Market (DCM) and a Derivatives Clearing Organization (DCO) regulated by the Commodities Futures Trading Commission (CFTC). The commission regulates prediction markets in this country.

The acquisition enables Underdog to offer its own federally-compliant prediction market exchange, giving customers even more ways to express their opinions on sports and beyond,” said the New York-based company in a statement.

While Aristotle may not be widely known in betting and prediction markets circles, it supports Predictit, which is well-known to fans of political event contracts. PredictIt rose to prominence by offering derivatives on elections. Financial terms of the acquisition weren’t disclosed.

Underdog CEO Admits Prediction Markets Focus on Sports

At a time when the prediction markets industry is contending with legal battles and increasing political scrutiny due to sports event contracts, Underdog CEO and co-founder Jeremy Levine may have rankled some by implying the Aristotle deal is about expanding his company’s sports prediction market platform.

“We’re in the early innings of what prediction markets can be, especially for sports fans,” he said in the press release. “We’ll use this opportunity to bring the same relentless focus on innovation and experience that we’ve always brought to our customers. The reality is, prediction markets are primarily about sports and no company knows how to engage with sports fans and create products for sports fans better than Underdog.”

That resulted in the company losing its DFS license in Arizona and pulling out of the Missouri sports wagering market.

Curious Timing for Underdog/Aristotle Deal

While the Aristotle acquisition jibes with Underdog’s efforts to forge deeper into sports event contracts, the timing of the announcement could draw derision in some circles because it was announced soon after the buyer reportedly laid off more than 20% of its staff.

The company cited artificial intelligence (AI) and prediction markets as among the reasons it reduced headcount. The layoffs were reported about a year after privately held Underdog was valued at $1.23 billion.

Neither Underdog nor Aristotle mentioned if any of the latter’s staffers would be transitioning to the buyer, but it is clear the deal is about buyer broadening its sports derivatives platform under its own roof.

“Underdog’s exchange will allow customers to access sports event contracts and more. Underdog currently offers access to prediction markets as an intermediary to other exchanges, and the company will continue to expand its prediction offerings under its own exchange,” according to the statement.