Prediction Markets Disrupt US Online Gambling, Threatening DraftKings

Prediction markets are emerging as a significant disruptive force in the U.S. online gambling landscape, challenging the established dominance of traditional sportsbooks. Platforms like Kalshi and Polymarket are experiencing a surge in trading volume, particularly within the sports betting segment, prompting concerns among investors and analysts about the future of industry titans such as FanDuel and DraftKings. This shift suggests a potential redefinition of online wagering, moving beyond simple bet placement to more complex market-based prediction contracts.

Impact on Stock Performance and Analyst Sentiment

The rapid ascent of prediction markets has directly impacted the stock performance of major betting companies. Following announcements from Robinhood Markets Inc. and Kalshi regarding substantial increases in trading activity on their respective prediction platforms, investors have shown a clear preference for these newer models. DraftKings Inc. saw its stock price plummet by over 16%, marking its most significant weekly decline since late 2022. Similarly, Flutter Entertainment PLC, the parent company of FanDuel, experienced a loss exceeding 8%. This market reaction underscores a growing sentiment that prediction markets represent the “next big thing” in online entertainment and speculation.

Wall Street analysts have also responded to these developments, with some downgrading target prices and initiating sell ratings for companies like DraftKings. Jordan Bender, an analyst at Citizens, emphasized the need for traditional bookmakers to present a clear strategy to investors, which could involve launching their own prediction markets or enhancing their marketing efforts. Until such a strategy is effectively communicated, prediction markets are likely to continue posing a substantial threat to their market share.

Expansion and Innovation in Prediction Markets

Platforms such as Kalshi and Polymarket, which initially gained traction by allowing users to bet on political events, are now aggressively expanding into the sports sector. By the end of September, Kalshi’s prediction market reported over 2.5 billion prediction contracts traded weekly, according to data from the analytics platform Dune. Their strategic partnership with Robinhood has broadened the scope of available wagers, encompassing everything from National Football League (NFL) games to political contests. Vlad Tenev, CEO of Robinhood Markets Inc., highlighted that their prediction market has facilitated over 4 billion event contracts since its inception, with more than 2 billion of those occurring in the third quarter of 2025. Tenev posits that these markets, while unconventional, are fundamentally altering the sports betting industry, influencing news dissemination, and offering traders a novel mechanism for assessing market expectations. He further drew a parallel between the current skepticism towards prediction markets and the initial dismissal of automobiles as impractical.

Kalshi has further innovated by introducing the capability for users to create their own “parlays”—complex bet combinations that are a primary revenue driver for traditional operators like DraftKings. This move directly addresses a core element of established betting platforms’ profitability. A notable advantage for prediction markets has been the tax treatment introduced during the administration of President Donald Trump, which classifies these transactions as financial contracts, potentially reducing the tax burden for traders. Additionally, Donald Trump Jr. has taken on an advisory role at Polymarket, following an investment from his venture capital firm.

Challenges and Future Outlook

Despite the growing appeal of prediction markets, Kalshi is facing scrutiny from several U.S. states, which have accused the platform of violating gambling laws. In response to these market shifts, FanDuel has partnered with CME Group to develop its own prediction contracts within the current year. However, a significant portion of the investment community remains loyal to the incumbent leaders. Data from Bloomberg indicates that over 80% of analysts maintain a “buy” rating for DraftKings and Flutter. Nevertheless, the velocity with which prediction markets are capturing market share is a clear cause for concern within the industry. Ben Axler, founder of a hedge fund, observed that prediction markets are demonstrating faster growth during the critical NFL season, while DraftKings’ volume expansion is decelerating, solidifying their position as a viable alternative to traditional operators. Polymarket is currently awaiting a decision from the Commodity Futures Trading Commission regarding its operations in the U.S. market.