Fantasy sports operator Underdog has made a significant regulatory play, acquiring Aristotle Exchange, a Commodity Futures Trading Commission-registered derivatives exchange and clearinghouse. The move positions the company to operate its own federally compliant prediction market platform, cutting out the middleman it currently relies on through its Crypto.com partnership.

The acquisition hands Underdog control of both a Designated Contract Market (DCM) and a Derivatives Clearing Organization (DCO), the two key registrations needed to run prediction markets legally in the United States. This means the company can now clear sports-related event contracts directly, giving it full control over how markets are listed and settled on its platform.

Taking Control of the Platform

“We look forward to working with the CFTC to offer an exchange that brings even more options to enjoy sports to our customers,” Underdog CEO and co-founder Jeremy Levine said in announcing the deal. “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.”

Last year, Underdog became the first sports betting operator to integrate prediction markets into its app, though it did so through a partnership with Crypto.com’s CFTC-registered exchange. That arrangement meant Underdog was essentially renting someone else’s regulatory infrastructure.

Now, with Aristotle’s licenses in hand, the company operates its own exchange and clearinghouse.

Aristotle will continue running its existing products, including PredictIt, the political prediction market platform that has operated under its banner. The deal strictly concerns the exchange licenses and infrastructure, not the content currently listed.

A Growing Trend in the Industry

Underdog’s strategy mirrors a pattern emerging across the prediction market space. Rather than endure the lengthy and uncertain process of applying for CFTC registration from scratch, companies are acquiring firms that already hold the necessary licenses. It’s a shortcut, plain and simple, but an effective one in a rapidly evolving regulatory environment.

The most obvious recent example came earlier this year when Polymarket paid $112 million for the holding company behind QCEX, a CFTC-licensed derivatives exchange. That acquisition allowed Polymarket to re-enter the US market as a fully regulated platform after previously operating in a legal grey area.

With DCM and DCO registrations now under its control, Underdog has stolen a march on major competitors like DraftKings, FanDuel, and Fanatics. None of those operators currently hold the regulatory infrastructure needed to run CFTC-compliant prediction markets directly.

State Regulators Remain a Challenge

Federal approval doesn’t mean smooth sailing. The deal puts Underdog squarely in the sights of state regulators who have been issuing cease-and-desist orders against prediction market operators. Even before acquiring Aristotle, several states had taken action against Underdog over its Crypto.com-powered prediction markets.

Arizona moved to revoke the company’s fantasy sports license over the products. Tennessee and Connecticut issued cease-and-desist orders to Crypto.com, arguing the platforms were running unlicensed sports wagering operations disguised as event contracts.

The tension between federal and state regulation remains unresolved. CFTC registration provides federal compliance, but it doesn’t override state gambling laws, which vary widely across the country. How that conflict plays out will likely determine whether prediction markets become a mainstream product or remain confined to friendly jurisdictions.

For now, Underdog has secured the regulatory foundation it needs to compete at the highest level. The real test will be whether it can navigate the patchwork of state laws that still stand in the way of a true nationwide rollout.