What DraftKings and FanDuel’s prediction market means for sports betting

Established sports betting giants are rushing to the prediction market table to ensure industry leaders don’t eat their lunch.

Two of the largest sportsbooks in the United States, FanDuel and DraftKings, each launched their own prediction market game in 2025. Daily fantasy sports app PrizePicks has also entered the fray. But stock analysts are already suggesting that these incumbents may be too late to slow the momentum of industry leaders Polymarket and Kalshi, even as prediction markets face mounting legal challenges from state regulators in the US.

Prediction markets allow their users to bet on virtually anything, not just sports: politics, stock and crypto markets, and even cultural events are on the menu. These markets are structured as futures contracts, allowing users to buy and sell stocks with a future outcome of $1, and are regulated by the Commodity Futures Trading Commission at the federal level.

Weekly prediction market volume recently topped $2 billion in Polymarket, Kalshi, Myriad and Limitless, and has been steadily increasing every week throughout the year. (Disclosure: Myriad is a product of Dastan, DeclutterAn oft-cited Certuity report estimates that prediction markets could reach $95.5 billion by 2035, with a compound annual growth rate of 46.8%.

Prediction markets operating in the United States, such as Kalshi, require a license from the CFTC. But state gaming authorities have recently started pushing back, arguing that these platforms should require licenses from them as well. It’s a tension between state and federal authorities that legal experts say could go all the way to the Supreme Court.

FanDuel, which struck a deal with futures trading giant CME in August to offer event contracts, recently faced criticism from Nevada regulators during a meeting last month.

“You’re in a melting pot that’s impossible going forward,” Nevada Gaming Commission Vice Chairman Brian Krolicki said at the October meeting, referring to FanDuel. “You’re all trying to do it right, you’re licensed for the things you do, but… the conflict that arises between shareholders and regulators is profound. It’s very difficult to hedge against the future compared to staying regulated.”

The Nevada regulator made his comments the same morning the FBI announced the arrest of NBA players and a coach, along with dozens of others, in the biggest sports gambling scandal in years. The scandal prompted questions from legal experts and former regulators about how federal and state authorities plan to deal with illegal betting as money on games increasingly shifts to prediction markets.– an industry regulated by an agency within the CFTC with little experience monitoring sports betting.

It is against this backdrop that sports betting companies are now evaluating the potential risks and rewards of entering the prediction market. If FanDuel and DraftKings are successful in their prediction market play, they could be accompanied by new regulatory oversight. But some stock analysts aren’t convinced the sports betting giants will get that far.

On Tuesday morning, Bank of America stock analysts downgraded DraftKings and Flutter, FanDuel’s parent company, citing a “perfect storm” of catalysts: declining margins, the possibility of new taxes being imposed on gambling companies in the US and UK, and increasingly fierce competition from prediction markets.

The BofA analysts have moved the companies from buy ratings to neutral. They also set a $250 price target for Flutter, down from $325; and a $35 price target from DraftKings, down from $40. The companies, which trade on the Nasdaq under the DKNG and FLUT tickers, were trading at $28.74 and $222.85, respectively, at the time of writing.

Investors have even pressed larger companies, such as casino operators, on whether they plan to join the fray in the prediction market.

Caesars Entertainment, which owns 50 casinos in the U.S. and has a major online gambling business, told investors during its earnings call this week that it is eyeing the prediction market industry but has no immediate plans to enter it.

“We will not jeopardize any of our licenses,” Chief Executive Officer Tom Reeg said during the Oct. 28 conference call. In his own Q3 earnings the next day, MGM Resorts International CEO Bill Hornbuckle echoed Reeg’s sentiment.

Neither FanDuel nor DraftKings immediately responded to a request for comment from Declutter.

The two sports betting companies had told investors that they were eyeing the prediction market long before they actually started their own betting operations.

FanDuel’s strategy was to partner with the largest derivatives exchange in the world. CME first launched its own event contracts in 2022 – two years after Polymarket and four years after Kalshi was founded.

The CME contracts were initially offered through the exchange’s retail brokerage partners, NinjaTrader, Tradovate and TradeStation. The deal struck with FanDuel in August means the companies will share in the marketing efforts and expand distribution to the new but unreleased FanDuel app.

CME event contracts mainly focused on economic and financial indicators, such as the S&P 500 or the price of gold and Bitcoin.

In its latest monthly volume report, CME noted that its S&P 500 event contract saw 1,548 trades in October, up 41% from the same period in 2024 and up 32% month over month. Since the beginning of the year, the CME S&P 500 contract has seen 25,998 trades, which is an increase of 82% from the same period last year.

That’s small potatoes compared to the record high of 26.3 million average daily contracts traded on CME in October. It remains to be seen how much FanDuel’s involvement will expand CME’s reach among residential users.

Eric Zitzewitz, professor of economics at Dartmouth College, explained Declutter that major players like FanDuel and DraftKings have been reluctant to enter the prediction markets due to the risk that they could cannibalize their existing products.

To be clear, sports betting and event contracts are not the same. Sports betting involves wagering on the outcome of a game of chance that falls under state gambling laws. Event contracts are federally regulated financial instruments that allow traders to take limited-risk positions on measurable market outcomes such as prices or economic indicators.

But there is overlap in the target groups for both products.

“They do have an incentive to ‘fast track’, but once it is clear that the new industry is coming, they often have the advantage of existing assets (e.g. a customer base) that create a potential advantage over the innovator,” he said. “In some cases they are fast enough and the incumbent wins; in other cases (the ones we often remember) they leave it too late.”

DraftKings seems to be looking for ways to avoid competing with itself. The company announced the acquisition of prediction market company Railbird two weeks ago, after rumors of the sale had been circulating since July. But the news came with some caveats.

A person familiar with the rollout of the company’s DraftKings Predictions mobile app said it “will focus on states without legal sports betting.” And while it will offer “finance, culture and entertainment” contracts at launch, the company has left the door open to adding sports contracts later.

Even as sports betting companies catch up, state regulators are shouting angrily over what they see as an unjust encroachment on their authority over state gambling and betting licenses.

“States are trying to use every arrow in their quiver to hinder these markets, the federal prediction markets, as much as possible,” Brogan Law founder and managing attorney Aaron Brogan told me. Declutter. “And that makes sense, but I don’t think it makes legal sense. I don’t think these types of actions are likely to be sustainable in federal court in the long run.”

Additionally, state regulators have insinuated that established sports betting companies such as FanDuel and DraftKings could jeopardize their existing licenses if they also offered prediction markets in the same state.

The main legal defense for prediction markets is that because states are regulated by the CFTC, they have no legal grounds to impose restrictions. Neither FanDuel nor DraftKings have been sued by a state regulator over their prediction market games as of this writing.

But any pressure on DFKG or FLUT to stay out of the sector would unfairly disadvantage them compared to their competitors, Brogan added.

“The result could very well be that companies like DraftKings and FanDuel end up being outcompeted in whatever regulatory equilibrium we reach,” he said, “and Kalshi and Polymarket may capture a large portion of their market share before they can respond.”