By Stacy Jones
8 min read
Established sports betting giants have found themselves rushing to the prediction-market table to make sure industry frontrunners don’t eat their lunch.
Two of the largest sportsbooks in the United States, FanDuel and DraftKings, each launched their own prediction market play in 2025. Daily fantasy sports app PrizePicks has likewise entered the fray. But equities analysts are already suggesting these incumbents may be too late to slow the momentum of industry frontrunners, Polymarket and Kalshi, even as prediction markets face mounting legal challenges from state regulators in the U.S.
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, enabling users to buy and sell shares in an outcome that later settle at $1, and are regulated by the Commodity Futures Trading Commission at the federal level.
Weekly prediction market volume recently topped $2 billion across Polymarket, Kalshi, Myriad, and Limitless, and has been steadily climbing each week throughout the year. (Disclosure: Myriad is a product of Dastan, Decrypt’s parent company.) An often 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 begun to push back, arguing these platforms should require licenses from them too. It’s a tension between state and federal authorities that legal experts say could be headed for the Supreme Court.
FanDuel, which entered into an agreement in August with futures trading giant CME to offer event contracts, recently received scrutiny from regulators in Nevada during a meeting last month.
“You’re in a crucible that’s impossible going forward,” Brian Krolicki, the Nevada Gaming Commission vice chair said during the October meeting, referring to FanDuel. “You all are trying to do it right, you are licensed in the things you do, but … the conflict that is arising between shareholders and regulators is profound. It’s very difficult to hedge for the future versus staying regulated.”
The Nevada regulator delivered his comments the same morning that 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 led to questions from legal experts and former regulators over how federal and state authorities plan to deal with illegal betting as money on games increasingly moves to prediction markets—an industry regulated by an agency in the CFTC with little experience monitoring sports betting.
It’s against this backdrop that sports betting companies are now evaluating the potential risks and rewards of entering the prediction market space. If FanDuel and DraftKings are successful in their prediction market plays, they could come packaged with new regulatory scrutiny. But some equities analysts aren’t convinced that the sports betting giants will get that far.
On Tuesday morning, Bank of America equities analysts downgraded DraftKings and Flutter, FanDuel’s parent company, citing a “perfect storm” of catalysts: declining margins, the possibility of new taxes being levied on betting companies in the U.S. and U.K., and increasingly stiff competition from prediction markets.
The BofA analysts 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 for $28.74 and $222.85, respectively, at the time of writing.
Investors have been pressing even larger companies, like casino operators, about whether they plan to enter the prediction market fray.
Caesars Entertainment, which owns 50 casinos across the U.S. and has a large online betting business, told investors during its earnings call this week that it’s monitoring the prediction market industry, but doesn’t have any immediate plans to enter it.
“We will not put any of our licenses at risk,” Chief Executive Officer Tom Reeg said on the Oct. 28 conference call. In his own Q3 earnings call 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 Decrypt.
The two sports betting companies had been telling investors they were keeping an eye on the prediction market space long before actually jumping in with their own plays.
FanDuel’s strategy was to team up with the biggest derivatives exchange in the world. CME first launched its own event contracts in 2022—two years after Polymarket and four years after Kalshi were founded.
The CME contracts were initially offered through the exchange’s retail broker partners, NinjaTrader, Tradovate, and TradeStation. The deal inked with FanDuel in August means that the companies will share in marketing efforts and expand distribution to new, but not yet released, FanDuel app.
CME event contracts have mostly focused on economic and financial indicators, like 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 time in 2024 and a 32% increase month-over-month. Since the start of the year, the CME S&P 500 contract has seen 25,998 trades, which is an 82% increase from the same period last year.
That’s small potatoes compared to the record-high 26.3 million average daily contracts traded on CME in October. It still remains to be seen how much FanDuel’s involvement will boost CME’s reach with retail users.
Eric Zitzewitz, an economics professor at Dartmouth College, told Decrypt that big players like FanDuel and DraftKings have been reluctant to jump into prediction markets because of the risk they might cannibalize their existing products.
To be clear: Sports betting and event contracts are not the same thing. Sports betting involves wagering on the outcome of a game of chance governed by state gambling laws. Event contracts are federally regulated financial instruments that let traders take limited-risk positions on measurable market outcomes like prices or economic indicators.
But there is overlap in the target audiences for both products.
“They do have an incentive to ‘fast follow’ though once it's clear the new industry is going to happen, and 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 others (the ones we tend to remember), they leave it too late.”
DraftKings appears to be looking for ways to avoid competing with itself. The company announced its acquisition of prediction market firm Railbird two weeks ago after the sale had been rumored 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 although it will offer “finance, culture, and entertainment” contracts at launch, the company left the door open to add sports contracts down the line.
Even as sports betting companies play catch up, state regulators are crying foul about what they view as an unjust encroachment on their authority over state gambling and gaming licenses.
“States are trying to use every arrow in their quiver to handicap these markets to the greatest extent possible, the federal prediction markets,” founder and managing attorney of Brogan Law Aaron Brogan told Decrypt. “And that makes sense—but I don't think it makes sense legally. I don't think that this kind of action is likely to be sustainable in federal court in the long term.”
What’s more, the state regulators have insinuated that established sports betting companies like FanDuel and DraftKings could jeopardize their existing licenses if they were to also offer prediction markets in the same state.
The main legal defense for prediction markets has been that because they’re regulated by the CFTC, states don’t have legal grounds to impose restrictions. Neither FanDuel nor DraftKings has been sued by a state regulator over its prediction market plays as of this writing.
But any pressure on DFKG or FLUT to stay out of the industry would unfairly handicap them against their competitors, Brogan added.
“The result could very much be that companies like DraftKings and FanDuel end up outcompeted in whatever equilibrium we reach on the regulatory treatment here,” he said, “and Kalshi and Polymarket are able to take a big chunk of their market share before they're able to react.”
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