For Underdog, the shift also means it can now design contracts tailored to its user base, potentially improving engagement and retention. The ability to customise products could differentiate Underdog from competitors that rely on standardised contracts from third-party exchanges. Moreover, operating its own exchange allows Underdog to retain the full spread between wagers and payouts, a financial structure that typically yields higher margins than the distribution fees earned previously.
This vertical integration also reduces Underdog's dependency on third-party platforms for critical infrastructure. By controlling the exchange, Underdog gains flexibility to adjust contract features, pricing, and settlement rules in response to market demand. The company can also experiment with new contract types without needing approval from an external partner, accelerating innovation cycles.
Winners and Losers
Underdog and UDX are the primary winners: Underdog gains control over its product offering and potential margin expansion, while UDX gains increased transaction volume and market relevance as the company's flagship exchange. The platform's federal regulation is a key asset, enabling operations across state lines more seamlessly than traditional sportsbooks that must obtain separate licenses for each jurisdiction.
External exchanges that previously handled Underdog's contracts may lose a distribution partner and associated fee income. This shift may also intensify competition among prediction market platforms, as Underdog evolves from a customer into a direct rival. Other established prediction market platforms may face a new entrant with a built-in user base and brand recognition in sports.