IG Group Acquires Underdog for $1.3bn Amid New CFTC Prediction Market Rules

Significant shifts are currently reshaping the international gambling and financial betting landscape. While major mergers redistribute market shares, regulatory bodies are intervening massively in the structure of providers. The Commodity Futures Trading Commission (CFTC) has presented a proposal that could shake the foundation of many modern prediction markets. It concerns the prohibition of directional positions for in-house market makers, which would fundamentally alter the economic basis for platforms like Kalshi or the Rothera joint venture between Robinhood and Susquehanna.

The industry atmosphere is tense as the new rules mandate that market makers act as neutral participants. They are expected to provide liquidity for both sides of a trade instead of betting on a specific outcome. Critics fear this will lead to higher fees and worse pricing for end customers. Meanwhile, a billion-dollar acquisition is making headlines: the British IG Group is absorbing the U.S. provider Underdog, which has rapidly evolved into a major player in sports betting and prediction markets.

Numbers and facts

The acquisition of Underdog by IG Group is valued at a base price of $1.1 billion, with earnout clauses potentially bringing the total to $1.3 billion. Underdog recently launched its own exchange, which reportedly topped the $1 million single-day volume mark just ten days after going live. The company also claims to rank third in U.S.-regulated notional volume.

On the legal front, Kalshi faces massive hurdles. A federal judge in New York denied a motion for an injunction against state actions for the second time within a month. Furthermore, Attorney General Letitia James filed a lawsuit in New York against the company. In Minnesota, a law intended to ban prediction markets was temporarily blocked, though with the caveat that not all event contracts fall under the CFTC's exclusive jurisdiction.

Background

The core of the conflict lies in vertical integration. When an exchange also owns the dealer setting the prices, conflicts of interest inevitably arise. Alex Kane, founder of Sporttrade, criticizes that even with neutral fee schedules, incentives could be set such that only the affiliated market maker remains viable. This would stifle competition and create a structure dominated by a single dealer.

"Nerfing affiliated MMs + higher fees on unaffiliated PMs = lower liquidity, with wider spreads, which means worse prices, which means less take volume. Without affiliated MM profits, PMs would have to consolidate." - SigmaSquirrel, Analyst at SigmaSquirrel

In addition to structural questions, the WNBA is struggling with a PR debacle. The league's own social media account posted a video showing players Angel Reese and Paige Bueckers placing a private $400 bet on their own upcoming game. In an era where sports integrity is under constant scrutiny due to proximity to gambling, such behavior by star athletes has a damaging effect on the professional league's image.

Why it matters for German players

For German customers, these international developments have indirect but noticeable effects. Germany possesses one of the world's strictest regulatory frameworks with the State Treaty on Gambling 2021 (GlüStV 2021). While liquidity and market makers are being debated in the U.S., the Joint Gambling Authority of the States (GGL) ensures order in Germany. Players using providers on the official whitelist have less reason to worry about market manipulation by affiliated firms.

However, strict rules also mean limitations: the cross-provider deposit limit of 1,000 euros per month and the stake limit of one euro per spin on slots are fixed pillars of German player protection. Monitoring is conducted via the LUGAS system, which prevents multiple registrations and limit violations. International mergers like Underdog's could eventually lead to financially stronger providers attempting to enter the German market with new products, provided they meet the strict GGL requirements.

What it means for GGL-licensed casinos

German casinos with a GGL license must strictly adhere to the separation of sports betting and casino games. The current debates in the U.S. demonstrate how vital transparency in pricing is. While MGA or Curacao providers often operate with opaque structures, German licensees offer security through state supervision. The GGL closely monitors which new betting forms emerge internationally to potentially integrate them into the German legal framework or prohibit them for player protection. Prediction markets on political events, currently booming in the U.S., are hardly feasible in Germany due to the strict focus on sports and games of chance.