FanDuel, DraftKings Talk About The Promise (Or Threat) Of Prediction Markets
While DraftKings CEO Jason Robins sounds upbeat to neutral about the future of sports event trading, FanDuel has a more cautious tone
Are prediction markets an opportunity for sports betting companies or a threat? It depends on whom you ask. For the two biggest operators in US sports betting, it seems like it is mostly seen as an opportunity.
DraftKings CEO Jason Robins talked about prediction markets like Kalshi twice in the past month. His words on the subject were pretty vague but also were not at all negative.
Meanwhile, FanDuel’s parent company sounded similar tones while also including prediction markets in a risk assessment in its annual report.
What FanDuel is saying
Prediction markets came up a couple of times during the earnings call this week of FanDuel parent company Flutter.
Flutter CEO Peter Jackson mentioned them in his opening statement on earnings: “We also note the research and development on prediction markets and opportunities that may arise for us there.”
Also:
Q: And then the second question is on prediction markets. Peter, you mentioned it very briefly there. Just listen to your main peer describe there as more of an opportunity than anything else. Is that how you see it?
Jackson: With regards to your second question, Ed, look, we are monitoring the situation with these sports futures contracts closely. The regulation is very fluid. I think we'll -- we understand that the CFTC is due to hold a roundtable on sports-related event contracts for the next month or so and we get especially some clarity thereafter. It could be an interesting opportunity but I think it's worth recognizing that the products themselves lack the richness of a true sportsbook offering. I think about the Your Way products and what we were doing around the Super Bowl for that. It's a very compelling, very broad parlay products. We need to remember that the prediction products are very vanilla in comparison.
Prediction markets were also mentioned in Flutter’s 2024 annual report under risk factors:
Additionally, in the United States, we face new competition from sports event trading as derivatives products regulated by the Commodity Futures Trading Commission. This new competition purports to be available nationwide and is currently being offered by a growing number of providers. While we believe that we are well positioned to compete with new entrants to the betting and gaming market through our online betting and gaming offerings, the competitive dynamic is evolving and we cannot assure you that our results of operations will not be adversely impacted by the expansion of legalized online gaming and betting.
What DraftKings is saying
Here’s what Robins said at the Morgan Stanley Technology, Media & Telecom Conference this week:
Q: Another question that I think has probably come up with investors certainly in your meetings from talking to some of the folks in your team, that I want to hear your thoughts on is just prediction markets, which I guess you could argue might be a product opportunity, but I'm curious how you think about it from opportunity or risk? How do you think about prediction markets?
Robins: I mean I think it's definitely more on the opportunity side, but we have to see how this plays out. The CFTC is reviewing it now and I think expected to have an official ruling in mid-April. So I think that will obviously be an important thing to see. And we're watching it carefully and looking at what happens there because if there is an opportunity that presents itself, we want to make sure we're prepared for it. But that's a big moment that we're all still kind of waiting to see what happens.
You can listen to the full webcast here.
And more from the DraftKings earnings call in February:
Q: And if I could just a follow-up on the strategic side, Jason. I wanted – there has been a lot of news flow out there and buzz around events contracts and prediction markets and during the sports landscape. So appreciate it is very early here, and this has been a moving target. But just sort of what's DraftKings initial take here? Is this something you'd get into? Or what can kind of project or differentiate you from that kind of offering?
Robins: Yes. I do think you are right, it is early. We are watching it very actively. It's certainly something that we have keen interest in seeing how it plays out. So I think there is some -- in the next couple of months, 60 days or so, there is going to be a CFTC ruling and all sorts of other things. So I think we'll know a lot more over the next few months.
It’s important to note all of these things were said before Nevada’s actions against Kalshi (more below). DraftKings and FanDuel might both have ambitions in this space (both sports trading and otherwise) if the CFTC continues to take a friendly stance. But CFTC approval doesn’t mean it’s necessarily open season for sports betting operators. State regulators and other forces may serve to keep operators out of the game. We’ve seen both the American Gaming Association and gaming tribes come out against sports event trading, for instance.
Regardless, the rapid rise of Kalshi and nationwide sports betting has the attention of the two biggest companies in US sports betting.
Want to sponsor The Event Horizon? Email dustin@closinglineconsulting.com
Rounding up the Nevada cease & desist
If you’re reading this newsletter, you’re probably well aware that the Nevada Gaming Control Board told Kalshi to stop offering its markets in Nevada. Just to get you up to date:
My analysis plus Kalshi’s statement in response at The Closing Line.
I got the letter that NGCB actually sent to Kalshi here.
CEO Tarek Mansour responded (kind of) on LinkedIn and Twitter.
There’s been no word of what Kalshi intends to do ahead of a deadline next week.
I highlighted this over at TCL, but here’s a bit of what Mansour wrote:
After the election, we were convinced that the value of prediction markets was now obvious to everyone, and that the regulatory battle for legal prediction markets was over… We were right, except for the everyone part.
Had Kalshi stayed out of sports betting, his hypothesis here might have been accurate. As soon as Kalshi got into sports betting, I think it’s pretty foolhardy to believe that everyone was going to welcome this with open arms.
It’s still very possible that Kalshi continues offering sports event trading legally. But the idea that the “value of prediction markets was now obvious to everyone” doesn’t really fly when you’re just offering unregulated nationwide sports betting. While some people welcome that opportunity, many do not.
Oscars betting controversy?
Kalshi posted a market called “How many people will watch the Oscars?” Users could bet if there would be more viewers than in 2024 (19.5 million) or 2023 (18.7 million). Sounds clear-cut, right?
“Yes” on both markets were graded losers, despite the fact that the final reported figure was pegged at 19.7 million at a number of outlets via Nielsen figures. Here’s Variety, for instance.
The problem? Many outlets, like the New York Times, reported an initial figure of 18 million. Kalshi apparently saw those reports, closed the markets, and graded “No” as the winner of both markets. A day later, the New York Times event corrected its initial report with the final numbers.
Not great! It doesn’t seem like there’s any recourse for bettors who actually ended up getting it right. It’s a pretty terrible look for Kalshi being a “source of truth” if this is how grading markets is done. The equivalent in sports betting would be a stat correction, which is generally made right by sportsbooks. But even that’s not a great comp; it seems like Kalshi likely rushed to close the market. And they’re also not making it right.
If you want to get more in the weeds, you can read more about it here from a user on Twitter; there’s a response in the thread from a Kalshi employee arguing that the market was resolved correctly using its own rules:
“If above 19500000 persons watch the Oscars in 2025, then the market resolves to Yes. Sources from Variety, The Guardian, the Associated Press, and The Washington Post.”
In any event, as all eyes are on the integrity of prediction markets and Kalshi, it’s fairly bad timing for something like this.
Kalshi CEO interview
Here is an interesting interview with Kalshi CEO Tarek Mansour:
A few pullouts of quotes and insights here:
Mansour said they onboarded two million users to their app last fall, and now they’re scaling beyond that and figuring out how to take it more mainstream.
“That’s the whole premise. We’re building financial markets that can cater to anybody on things that they actually know and care about, so that should be pretty big…And I think this should be able to rival the stock market one day, especially with the rise of retail trading and so on and so forth. And I think Don (Trump Jr.) can be pretty helpful with that.”
“The thing that we’re really focusing on this year is launching the brokers, where you can trade our products on your brokerage app. And that’s because a lot of people like to do everything in their brokerage. That’s where they have their account, their wallet, and so on.
After announcements of deals in the works with Robinhood and Webull, Mansour said: “I think over time we discuss with all the other ones like Coinbase, DraftKings; all the others in various stages of the pipeline, hopefully also we’ll get them at some point.”
“People want sports. I mean, they really want sports. It’s a huge market…There’s a few things that I believe this is forever going to shift the landscape, basically – a little bit like what we did with the election. It’s the first time that trading on sports is actually legal in all 50 states. Because we are regulated by the feds, at the federal level, not state by state, and the federal regulation, like the law, actually supersedes state law. So anything that you do on Kalshi, on an exchange, state law doesn’t actually quite apply.” … “I think sports is probably going to be very large for us.”
Mansour’s legal analysis is pretty interesting coming out just a few days before the Nevada action.
Mansour noted this tweet in the interview, putting Kalshi fourth in “moneyline” betting on the Super Bowl vs. legal sports betting operators. That has to be taken with a grain of salt, as Kalshi has a much larger addressable market. Also, moneyline betting is just one of literally hundreds of ways US sportsbooks take wagers on the Big Game. Estimates put the amount wagered on the Super Bowl at regulated sportsbooks at about $1.5 billion, making the $27 million traded at Kalshi a drop in the bucket.
Sports market update
Here are the sports markets that Kalshi currently offers as of Thursday morning:
Basketball, 12: NBA and college; both overall and conference championship winners.
Soccer, 15: Various league champion markets, but also markets about which teams will advance to the Champions League quarterfinals (essentially head-to-head markets).
Tennis, 5: Champions of majors plus winner of ATP Dubai. Markets for single-match outcomes continue to spawn.
Golf, 7: Tournament winners of various 2025 tournaments.
Baseball, 3: World Series and league winner markets.
Football, 2: College football champion and 2026 Super Bowl.
Formula 1, 1: Drivers Champion.
Hockey, 1: Stanley Cup winner.
Mixed martial arts, 1: UFC 313 main event winner
The Closing Bell
A roundup of prediction market industry news and thoughts:
Kalshi does an Oscars commercial: Mansour shared the commercial on Linked in and also shared that they had produced a commercial about election betting, and alleged “Every TV outlet blocked our ad and censored it from airing for reasons unknown to us.”
The Oscars have been one of Kalshi’s biggest markets outside of elections and the Super Bowl, There was about $10 million wagered across the top three awards (best picture, best actor, best actress). Another $5 million or so was traded on a variety of other awards and markets.
Kalshi now has 7.5% of US derivatives marketshare: Per Mansour: “The CFTC actually defines that as an exchange with more than 5% US market share and calls it a ‘covered’ exchange. While our notional volume is still far, Kalshi just became a covered exchange and is now formally too big to fail.”
Online Betting Markets Get Dark With Pope’s Future Uncertain (Bloomberg): We noted the Pope death markets in last week’s EH. More from Bloomberg: “In the bet’s comments section, users sparred over the morality of their speculation. ‘Betting on the pope’s health sends you directly to Hell,’ one Polymarket user wrote on Tuesday. ‘Benefiting and hoping for someone’s death seems too immoral for me to bet on this market,’ mused another. Commenters shared links to the latest updates on Francis’s health, and drifted into conjecture about a possible papal resignation and the existence of God.”
SportsCapital CEO Aaron Riccio wrote an open letter entitled “On federally regulated sports event contracts” to discuss the potential opportunity he sees regulated sports prediction markets presenting for sports data companies:
“Once there's regulatory clarity, we expect the traditional financial ecosystem to invest billions into supporting the inevitable consumer demand for these new products…The common thread between everyone involved is that they need financial data and technology. Everyone relies on companies, like Bloomberg or PitchBook, who supply a wide range of financial, economic, and industry data.
“We expect sports data and technology to fill a similar role in the trading of event contracts. The companies providing real-time player stats, odds, injuries, and news will become critical sources of information. It has become clear to us that there's a diverse set of use cases and the potential market expansion for sports data companies is unprecedented.”
Kalshi’s business model: An interesting read on LI from Alex Ursa, head of gaming at Betr. “Unsolicited Business Model Review of Kalshi. Conclusion: The smaller the customer, the bigger the fees. Essentially, customers who trade a low number of cheaper contracts pay up to 100% commission, while market makers pay as little as 0%.”