• Prediction markets are emerging as a material competitive threat to traditional sportsbooks, but the incumbents are now joining the market rather than just defending against it.
  • DraftKings (DKNG) and FanDuel are launching their own prediction products while Kalshi and Polymarket lead the exchange space, with sports accounting for roughly 65% of Kalshi’s revenue.
  • A growing legal split among federal appeals courts—and a new lawsuit from Utah—casts uncertainty over nationwide access claims, with the Supreme Court potentially set to weigh in.

The Competitive Threat Intensifies

Prediction markets have evolved from a niche curiosity to a force that Wall Street can no longer ignore. According to Bank of America (BAC)’s Shaun Kelley, platforms like Kalshi have challenged traditional sportsbooks, including DraftKings ($DKNG) and FanDuel ($FLUT), by offering access across all 50 U.S. states and eligibility for users 18 and older. But the latest twist is that the established players are now entering the prediction market themselves, blurring the lines between competitor and partner.

At the October 22–23 NEXTPredict summit, DraftKings described itself as the third-largest prediction-market exchange behind Kalshi and Polymarket. That characterization, while not independently audited, underscores how quickly the company has moved since launching its Predictions product in December 2025. “We see prediction markets as a natural extension of our platform,” a DraftKings executive said at the summit, according to people familiar with the matter. “We’re not just defending our turf; we’re expanding it.”

A Shifting Revenue Mix

Kalshi CEO Tarek Mansour told Reuters (TRI) on October 21 that sports now account for approximately 65% of revenue, down from about 95% nine months earlier. The company is diversifying into politics, economics, and entertainment, but sports remains central to its economics. Kalshi is reportedly raising financing at around a $40 billion valuation, according to people familiar with the matter—a private-market figure that highlights investor appetite for the sector.

Meanwhile, the financial performance of the traditional operators has been mixed. DraftKings reported Q2 revenue of $1.443 billion, down 5% year over year, and a net loss of $67.6 million versus a $157.9 million profit a year earlier. Adjusted EBITDA fell to $114.6 million from $300.6 million. The company maintained its 2026 guidance of $6.5–$6.9 billion revenue and $700–$900 million adjusted EBITDA, but management linked increased promotional reinvestment to both Sportsbook and Predictions. Flutter Entertainment (FLUT), FanDuel’s parent, saw group revenue rise 3% to $4.326 billion with a $296 million net loss; U.S. revenue declined 6% to $1.683 billion, with sportsbook revenue down 15% while online casino revenue rose 14%. FanDuel Predicts revenue was not material in Q2, and management expected second-half gross revenue to be offset by customer-acquisition investment.

The revenue declines cannot be solely attributed to prediction markets. DraftKings cited customer-friendly sports outcomes and promotional spending; Flutter also identified unfavorable sports results as a significant factor. Still, the competitive pressure is evident: DraftKings’ sportsbook footprint covers approximately 53% of the U.S. population, while prediction products offer a potential route to customers outside that footprint—subject to legal restrictions.

Legal and Regulatory Crosscurrents

The legal landscape is becoming more complex by the day. Federal appeals courts have reached conflicting conclusions: the Third Circuit has sided with Kalshi, while the Sixth and Ninth Circuits have sided with states in relevant disputes. New Jersey has requested Supreme Court review, and on October 20, Utah filed a new lawsuit seeking to stop Kalshi’s operations and recover money associated with allegedly illegal wagering.

At the heart of the dispute is a fundamental question: are sports-event contracts financial derivatives governed by the Commodity Exchange Act and federal oversight, or are they sports bets that must comply with state licensing, tax, and consumer-protection rules? Kalshi and the CFTC argue the former; states argue the latter. The split among circuits increases the likelihood of Supreme Court intervention, though no definitive ruling is scheduled.

Congress could also step in. Senator Ted Cruz announced plans on October 22 for legislation requiring state and tribal approval for sports-event prediction markets. That is a proposal, not enacted law, but it signals growing political scrutiny. An October Illinois ruling further muddied the waters: the court found the state’s licensing regime likely preempted as applied to exchange-traded event contracts, while highlighting continuing questions about state taxation.

What’s at Stake

For investors, the key financial question is whether prediction products generate profitable new customers or require sustained subsidies while diverting existing sportsbook activity. DraftKings’ next scheduled results, after the close on November 5, should provide another opportunity to assess spending and management’s 2027 outlook. The company’s shares have been volatile, reflecting uncertainty over the outcome of the regulatory fight.

States and tribes are watching closely, as gambling revenue funds public programs and responsible-gaming initiatives. A federal framework could support deeper national liquidity, while state-by-state regulation could fragment markets and preserve local taxation. Consumer advocates also raise concerns about age safeguards and gambling harm, questioning whether financial-market protections adequately address gambling-like behavior.

Mansour remains publicly confident in Kalshi’s legal position, but Reuters emphasized that a defeat could constrain its sports profits. The evidence supports the headline’s competitive warning—not the stronger conclusion that prediction markets have already displaced sportsbooks or secured permanent nationwide access. As the legal battles unfold, one thing is clear: the contest for the future of sports wagering is only heating up.

Correction: An earlier version of this article misstated the quarter in which FanDuel Predicts revenue was reported. It was Q2. The article has been updated.