Prediction markets are experiencing rapid growth, challenging traditional sportsbooks. According to New York state data, revenue from online sports wagering has plunged during the NFL playoff season, a period typically booming for betting.
This decline coincides with surging volumes on platforms like Kalshi, where NFL-related bets hit a record $720 million last week, including over $100 million on a single game. Kalshi reports sports bets accounting for around 90% of its trading volumes. These platforms — operating as federally regulated exchanges — circumvent state gambling laws, drawing users away from established operators like DraftKings (NASDAQ:DKNG | DKNG Price Prediction) and Flutter Entertainment (NYSE:FLUT).
Equity research analyst Jordan Bender noted that prediction markets are impacting sports betting companies, particularly during major events like NFL playoffs. As volumes rise, these markets are stealing market share and raising the question: Are prediction markets — not sportsbooks — the future of sports betting?
How Prediction Markets Threaten Traditional Sportsbooks
Prediction markets pose a direct threat to sportsbooks by offering event-based contracts that mimic betting but operate under different regulations. Unlike state-licensed sportsbooks, platforms like Polymarket and Kalshi can reach users nationwide, even in areas where online gambling is restricted. This accessibility allows them to capture bets on high-profile events, eroding the customer base of traditional operators.
For instance, during the recent NFL playoffs, Kalshi saw its five highest-volume games of the season, highlighting how these markets thrive on tentpole sports moments. State regulators have labeled some products illegal and urged shutdowns, but the platforms remain and continue to pressure sportsbooks.
The threat is amplified because sports betting forms the core revenue for DraftKings and Flutter. For DraftKings, sports betting accounted for approximately 52% of its revenue in the third quarter, totaling $596 million out of a total $1.14 billion. Similarly, Flutter’s U.S. segment, driven by FanDuel’s sportsbook, generated $1.37 billion in Q3, representing about 36% of its total $3.8 billion revenue, with sports betting being a key driver within that.
Prediction markets undermine this by siphoning bets, especially on major leagues like the NFL, where user engagement peaks. Lower barriers to entry, such as no state-specific approvals, enable faster user acquisition and higher volumes during events, potentially reducing sportsbook handle and margins.
Emerging Competitors Intensify the Challenge
While Polymarket and Kalshi dominate, new entrants are expanding the space. Platforms like Pariflow, which uses AI for predictions, and Fanatics Markets are gaining attention. Others include Underdog, ForecastEx, and Robinhood‘s (NASDAQ:HOOD) MIAX exchange. Coinbase (NASDAQ:COIN) is also expanding into prediction markets. These newcomers often partner with established players, such as Kalshi distributing contracts via Robinhood or Flutter entering through a partnership with CME Group (NASDAQ:CME).
Sports betting and fantasy companies are also developing in-house options, which accelerates competition and fragments the market. Six apps currently compete, with three more slated for early 2026 launches. This influx could dilute traditional sportsbook revenues as users migrate to platforms with broader event coverage and innovative features.
Can Sportsbooks Fight Back With Their Own Platforms?
DraftKings and Flutter have begun responding by launching their own prediction market offerings. These were rolled out last month in states where sports gambling remains illegal, leveraging their brand recognition in betting. Their association with established sports ecosystems could provide an edge, attracting loyal users familiar with their interfaces and promotions.
However, traction is unclear, and building scale may take time due to regulatory hurdles and competition from more agile startups. Developing robust platforms requires investment in technology and compliance, potentially delaying widespread adoption. If successful, these could help recapture lost share, but delays might allow prediction markets to solidify their lead.
Key Takeaway
Prediction markets are very likely the future of sports betting, offering regulatory advantages and event-focused appeal that traditional models struggle to match. Unless and until DraftKings and Flutter develop fully competing platforms or partner with leaders like Kalshi or Polymarket, there is significant risk to their stocks, which have fallen in 2026 even as prediction volumes surge.
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