The federal law considers fantasy sports a game of skill and not chance. This allows for fantasy sports betting, but it prohibits betting on a single game or player. Although federal law allows for fantasy sports betting, state law may prohibit this activity.
Fantasy-sports app Underdog said it has completed a second fundraising round that values the company at $485 million with plans on expanding into the growing sports-betting market in the U.S.
Underdog said it raised $35 million in a B round including Blackrock and Acies Investment, the latter a venture-capital firm focused on sports betting and online gambling. Underdog says it intends on expanding from fantasy-sports contests into sports wagering, which has rapidly grown into a more than $4 billion industry in the U.S. The company plans to launch licensed sports-betting operations in Ohio and Colorado next year.
The company’s founder, Jeremy Levine, said Underdog has grown its customer base by developing games different from those offered by major companies in the market today. The company declined to release how many customers it has.
“The rest of the companies, they’re sports book companies, that’s how they view themselves,” Mr. Levine said. “We like to think of ourselves as a gaming studio in a licensed betting environment.”
Draft Kings Inc. and Fan Duel both started in fantasy sports before entering the new online sports-betting market in 2018. The fantasy sites and major casino operators have been competing for market share as new states legalize sports betting, spending hundreds of millions on advertising and promotions to acquire new customers.
Underdog’s games include “best ball,” a fantasy game in which players don’t have to manage their line ups week-to-week after the initial draft. In sports betting, the company will offer traditional sports wagering and build new offerings in areas like betting during live games, Mr. Levine said.
Mr. Levine has previously founded two fantasy-sports companies. He sold the assets of StarStreet, an early fantasy site, to Draft Kings in 2014. He launched a mobile-focused fantasy site, Draft, which was bought for $48 million in 2017 by Paddy Power Betfair, FLTR 1.77% now known as Flutter Entertainment PLC, the owner of Fan Duel.
Nearly 70 million people in the U.S. gamble on sports or play fantasy sports, with nearly 60% participating in both, according to the Fantasy Sports and Gaming Association. The number of people gambling on sports has risen by 20% from last year, according to the group, and the number of people playing fantasy has gone up by nearly 14% from last year.
Sports betting is now legal in 35 states and the District of Columbia, with several states including California considering joining the market. Last year, sports wagering generated about $4.3 billion in revenue, and analysts with Eilers & Krejcik Gaming forecast the industry could grow to nearly $20 billion in 2026.
Underdog has more than 165 employees and plans to hire 100 more in the next year.
Previous investors include Mark Cuban, Kevin Durant and Breon Corcoran, the former chief executive of Paddy Power Betfair, among others, the company said.
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