Prediction Markets Gamble on Legal Gray Area to Outmaneuver Sports Betting Bans

Underdog, a rapidly growing fantasy and sports gaming operator in the United States, has partnered with Crypto.com to launch a sports prediction market platform in 16 states, primarily focusing on those where traditional sports betting remains illegal. This collaboration marks the first entry of a sports gaming platform into the nascent but expanding prediction market sector, which blends elements of financial trading and sports betting. Through this partnership, users will be able to trade on contracts based on the outcomes of major sporting events, including the NFL, NBA, MLB, and college football. The platform leverages Underdog’s technology and is powered by Crypto.com Derivatives North America (CDNA), which is registered with the Commodity Futures Trading Commission (CFTC) [1].

The prediction markets will be available in a combination of states where sports betting is either limited or entirely prohibited. These include Alabama, Alaska, Arkansas, California, Georgia, Minnesota, Nebraska, New Mexico, North Dakota, Oklahoma, Rhode Island, South Carolina, South Dakota, Texas, Utah, and Wisconsin. Seven of these states already allow some form of sports betting, while the remaining nine still ban it entirely. By focusing on these markets, Underdog and Crypto.com aim to capitalize on the legal gray area surrounding prediction markets, which are not yet classified as traditional gambling by federal regulators. The contracts allow users to trade against one another rather than against a house, differentiating them from conventional betting models [2].

The partnership has been highlighted as a strategic move to bypass state-level regulators and tribal opposition that often hinder the expansion of legal sports betting. For instance, California and Texas—two of the most populous states—do not offer legal sports betting, while the Seminole Tribe in Florida maintains a near-monopoly over legal gambling. The absence of legal sports betting in these markets has left a gap that prediction platforms like Underdog and Crypto.com can exploit. Moreover, the federal regulatory framework, as governed by the CFTC, allows for these markets to operate without direct interference from state gaming commissions, at least for now [1].

Industry analysts have noted that the prediction market sector is gaining traction and could become a significant revenue stream. Jordan Bender of Citizens Gaming estimated that the sports prediction market could generate $555 million in 2025, compared to the $16 billion legal online sports betting market in the same period. This suggests that while still in its early stages, the prediction market has the potential to grow rapidly, especially as more companies seek to enter the space. Other major players, including Robinhood, Kalshi, and Polymarket, have already launched similar offerings, and industry leaders such as FanDuel and DraftKings are reportedly considering expansion into the sector [1].

The launch of Underdog’s prediction markets also reflects broader legal and regulatory uncertainties surrounding the industry. The CFTC and federal courts are still evaluating whether these markets fall under the definition of sports gambling and whether they infringe on state regulatory authority or conflict with the Indian Gaming Regulatory Act. Legal challenges have already emerged, with platforms like Kalshi facing cease-and-desist orders from state regulators. Nonetheless, the momentum behind prediction markets appears to be growing, supported by both technological innovation and consumer interest in more flexible betting models [1].

This partnership positions Underdog as a leader in the emerging prediction market sector. As a company with proprietary technology across fantasy sports and regulated sports betting frameworks, Underdog now offers a unique combination of fantasy sports, sports betting, and prediction markets within a single app. The company also emphasizes responsible gaming and has robust customer protection measures integrated into its platform. Meanwhile, Crypto.com, with its strong regulatory compliance and security reputation, provides the infrastructure necessary to offer these contracts on a large scale. Together, the collaboration represents a significant step toward mainstreaming prediction markets in the American sports betting landscape [4].

Source:

[1] Crypto.com and Underdog partner to offer sports prediction markets (https://www.cnbc.com/2025/09/02/cryptocom-and-underdog-partner-to-offer-sports-prediction-markets.html)

[2] Underdog Bets on Prediction Markets With Crypto.com Deal (https://frontofficesports.com/underdog-bets-on-prediction-markets-with-crypto-com-deal/)

[3] Underdog, Crypto.com add sports prediction market (https://www.sportsbusinessjournal.com/Articles/2025/09/02/underdog-cryptocom-partner-on-sports-prediction-markets/)

[4] Underdog and Crypto.com | Derivatives North America ... (https://www.morningstar.com/news/business-wire/20250902697076/underdog-and-cryptocom-derivatives-north-america-announce-first-prediction-market-exchange-offered-on-major-sports-gaming-operator-app)