IG Group's recent agreement to acquire Underdog Sports Holdings is being framed as more than just a move into the realm of prediction markets. It represents a strategic bet that a financial trading firm can provide essential support to gaming companies, specifically in terms of capital, risk management, and expertise in markets that fall outside traditional boundaries.
The deal, announced on July 30, involves an upfront enterprise value of around $1.1 billion, with an additional earn-out potential of up to $200 million. For Underdog employees, a management incentive plan allows for up to $850 million if the company achieves significant future earnings, with the completion of the transaction expected in late 2026 or early 2027.
While the total amount of $1.3 billion sounds substantial, it's vital to differentiate between the considered payments and the incentives tied to performance. The $850 million available through the incentive plan is not a direct payment to the sellers but is contingent on the company's future growth, making the real price of this acquisition somewhat less alarming.
As Ben Robinson, a partner at Corfai, pointed out, IG Group is effectively paying about $1.1 billion, translating to approximately 2.4 times Underdog's revenue from the previous twelve months. When factoring in the complete earn-out potential, that valuation rises only to around 2.8 times revenue, which is notable but not prohibitively expensive for an emerging company.
In comparison, the most relevant public example is PrizePicks, which Allwyn agreed to acquire for an upfront enterprise value of $2.5 billion—a valuation equivalent to about 2.9 times its revenue and 7.4 times its EBITDA. While Underdog’s valuation appears lower on a revenue basis, it is more favorable concerning earnings due to lower margins.
Robinson noted, "It’s paid a sensible DFS revenue multiple for a business whose earnings are still catching up and structured most of the expensive upside around performance." This structure emphasizes the notion that the highest valuations are linked to future growth that has yet to be realized.
Indeed, the first tier of the management incentive kicks in when EBITDA reaches $140 million by 2028, while the maximum payout requires hitting $400 million in EBITDA. To date, Underdog's current growth trajectory has shown impressive results, with net revenue reaching $466 million for the year ending June 2026, a 21% increase year-on-year, and prediction markets contributing to over half of its handle. However, growth is beginning to slow, raising questions about the sustainability of this upward trend.
Robinson pointed out that there has been only an 11% growth rate in the first half of 2026, suggesting that the increasing share of prediction markets may indicate a shift in spending rather than entirely new revenue streams. To reach the ambitious EBITDA targets set for 2028, Underdog will need to accelerate its growth significantly, explaining why IG has structured such significant potential value into performance-related earn-outs.
Sam Martin, of Wiggin, highlighted the dual nature of the agreement, viewing it as a measure not only of IG's expectations for growth but also as a safeguard against potential regulatory challenges to the prediction market growth.
"While the headline price may be eye-opening and reflective of the incredible growth in prediction markets, the deal structure itself may partly be seen as a strong expectation of growth but also effective hedging by IG against foreseen headwinds to the growth of predictions markets," Martin said.
These regulatory challenges are prominent, with state regulators and various stakeholders disputing whether sports contracts in prediction markets should be classified as financial products or gambling, and numerous legal cases are underway.
Ed Birkin from H2 Gambling Capital maintained a cautious stance. He remarked, "I suppose the valuation makes sense if you believe that the market is going to continue to grow and will be around, but clearly, if the market gets closed down in a huge number of states, then that makes things look very different."
The intricacies of the transaction reveal a connection between Jeremy Levine, Underdog’s founder, and IG Group CEO Breon Corcoran, who previously oversaw the acquisition of Levine’s DFS business, DRAFT, by Paddy Power Betfair in 2017. Corcoran holds a personal interest in Underdog, disclosed as about 0.34% of its fully diluted share capital, although he recused himself from the final board vote on the acquisition.
The competitive landscape presents additional challenges. Underdog currently ranks behind Kalshi and Robinhood in regulated notional-volume flow and has just launched its exchange. As Robinson noted, the critical element of any prediction market operation is liquidity, and while IG may help bolster Underdog’s standing, the underlying market dynamics are complex and fluid.
The transaction pressures existing firms, with DraftKings and FanDuel pursuing their own prediction market ventures, adapting to a rapidly evolving industry landscape. Observers like Chris Grove believe the current developments signal an urgent need for traditional sportsbooks to engage with the prediction market space comprehensively.
Despite the overall excitement regarding prediction markets, as IG Group embarks on securing its foothold, the market's reception has been lukewarm. Following the announcement, IG's shares fell nearly 20%, indicating investor hesitation about the long-term viability of this growth strategy.
In essence, IG Group’s acquisition of Underdog isn't merely a financial commitment but a calculated, multi-layered wager on future growth in a market fraught with uncertainty. The company is banking on Underdog's extraordinary expansion under a familiar helm while hoping for a favorable regulatory environment as it seeks influence in the U.S. market.
