The Rise of Sports Prediction Markets: A Regulatory-Backed Disruptor in the $555M Opportunity

The sports betting landscape in the U.S. is undergoing a seismic shift, driven by a novel approach to wagering that bypasses state-level restrictions and tribal sovereignty constraints. At the forefront of this disruption are platforms like Underdog and Crypto.com, which have leveraged the Commodity Futures Trading Commission (CFTC) framework to launch sports prediction markets in 16 states—including California, Texas, and Florida—where traditional sports betting remains illegal or restricted [1]. By structuring their offerings as federally regulated financial derivatives, these platforms have created a $555 million opportunity in 2025, capitalizing on unmet demand in regions with over 100 million potential users [2].

Regulatory Innovation: Bypassing State Barriers

The traditional sports betting industry in the U.S. is fragmented by state laws and tribal compacts, creating a patchwork of regulations that limit market access. Underdog and Crypto.com, however, have sidestepped these hurdles by operating under the CFTC’s derivatives framework. Their partnership allows users to trade contracts tied to sports outcomes—such as NFL and college football games—as real-time financial instruments, with prices determined by market demand rather than bookmakers [3]. This model not only avoids state licensing requirements but also aligns with federal oversight, providing a scalable solution for expansion [4].

According to a report by AINVEST, this regulatory strategy has enabled the platforms to enter markets like California, where 40 million residents previously had no legal avenue for sports betting [1]. By integrating Crypto.com’s CFTC-registered Derivatives North America (CDNA) infrastructure into Underdog’s app, the partnership offers a seamless experience that combines fantasy sports, licensed betting (where legal), and prediction markets [2]. This hybrid model positions the platforms to capture a growing share of the $70.1 billion legal sports betting market in the U.S. for the first seven months of 2025 [5].

Financial Performance and Growth Metrics

Underdog’s rapid ascent underscores the investment potential in this space. The company, which generated $56.5 million in revenue in 2023 with 314 employees, has since expanded to 471 employees and secured a $70 million Series C funding round in February 2025, valuing it at $1.2 billion [3]. This funding, led by Spark Capital, reflects strong investor confidence in its ability to scale. Meanwhile, Crypto.com’s Derivatives North America (CDNA) has provided the regulatory infrastructure to monetize this growth, with the broader prediction market sector already seeing $2.6 billion in trading volume during the 2024 U.S. elections [1].

The financial synergy between the two companies is evident. Underdog’s user base—already a staple in fantasy sports—now has access to a federally compliant prediction market, while Crypto.com gains entry to a high-growth segment of the gaming industry. As stated by CNBC, the integration of these services into the Underdog app has positioned the platform as a “one-stop shop” for sports fans, combining traditional betting with innovative derivatives trading [4].

Market Opportunity and Competitive Edge

The sports prediction market is projected to generate $555 million in revenue in 2025, driven by expanding user interest and technological advancements [2]. This growth is further fueled by the entry of competitors like Robinhood, Kalshi, and Polymarket, though these platforms face regulatory uncertainty. For instance, seven U.S. states have issued cease-and-desist letters to prediction market operators, questioning the classification of these contracts under existing gaming laws [5]. Underdog and Crypto.com’s CFTC-registered model, however, provides a critical regulatory edge, allowing them to operate in a gray space between traditional betting and financial trading [3].

Risks and Considerations

While the regulatory framework offers a significant advantage, challenges remain. The legal landscape for prediction markets is still evolving, and state-level pushback could delay expansion. Additionally, the sector’s reliance on user education—teaching sports fans to trade derivatives rather than place bets—requires sustained investment in marketing and onboarding. However, Underdog’s emphasis on responsible gaming and Crypto.com’s brand recognition mitigate some of these risks [3].

Conclusion: A Strategic Investment Case

The partnership between Underdog and Crypto.com represents a strategic alignment of innovation and compliance, creating a scalable model for the sports prediction market. With a $555 million revenue projection in 2025 and a first-mover advantage in federally regulated derivatives, these platforms are well-positioned to dominate a sector poised for rapid growth. For investors, the combination of regulatory clarity, financial performance, and market demand presents a compelling opportunity to capitalize on the next frontier of sports betting.

Source:
[1] The Rise of Federally Compliant Sports Prediction Markets, [https://www.ainvest.com/news/rise-federally-compliant-sports-prediction-markets-strategic-opportunity-evolving-gaming-landscape-2509/]
[2] Crypto.com & Underdog Launch Sports Prediction in 16 US..., [https://www.gamingtoday.com/news/crypto-com-underdog-launch-sports-prediction-markets/]
[3] Underdog Stock Price, Funding, Valuation, Revenue..., [https://www.cbinsights.com/company/underdog-fantasy/financials]
[4] Crypto.com and Underdog partner to offer sports prediction..., [https://www.cnbc.com/2025/09/02/cryptocom-and-underdog-partner-to-offer-sports-prediction-markets.html]
[5] US Sports Betting Revenue and Handle 2025, [https://www.sportsbookreview.com/news/us-betting-revenue-tracker/]