By Nick Devor

As prediction markets pick up more wins, the U.S. sports betting duopoly continues to lose.

DraftKings and FanDuel-parent Flutter Entertainment saw their shares fall around 6% on Tuesday. The selloff comes amid an already difficult stretch for the stocks. DraftKings and Flutter are down 28% and 18% over the last month, respectively.

Tuesday's move follows an announcement by the owner of the New York Stock Exchange that it would invest up to $2 billion in Polymarket, bringing the prediction market's data to traders around the world.

Prediction markets like Polymarket and Kalshi received new attention from the sports betting world after gamblers turned to the platforms during this year's NCAA March Madness basketball tournament. As they have gained business, investors have begun to worry about the increased competition for the pure-play sports betting services.

Those worries picked up steam last week after Kalshi said daily trading volume hit a record after a recent slate of Sunday NFL games. "Nothing beats football in America," Kalshi CEO Tarek Mansour wrote on X.

Kalshi and Polymarket broker trades of federally regulated "event contracts" that are built around yes/no questions. While traditionally used by institutional investors to hedge against unfavorable outcomes, prediction markets entered the mainstream last year by allowing traders to bet on the outcome of the U.S. presidential election.

This year, Kalshi began offering event contracts based on the outcome of sporting events. It has since added related contracts like total runs scored in a baseball game.

Despite their similarity to sports betting, event contracts are financial instruments subject to regulation by the U.S. Commodity Futures Trading Commission, a stance that has angered the gambling industry, tribal gaming interests, and state regulators.

"The depth of markets available for customers to populate bets with is far more extensive on FanDuel," a Flutter spokesperson says. "We therefore continue to expect that regulated sports books will remain the destination for sports bettors' wallets in regulated states."

DraftKings didn't respond to a request for comment.

Sportsbooks run by DraftKings and FanDuel currently operate in the 39 states where sports betting is legal. Prediction markets, under the CFTC's domain, are legal across the entire U.S. The CFTC's recent actions reflect a relaxed attitude toward regulation of the marketplace.

Its rules allow the prediction markets to tap into rich markets like Texas and California, where traditional sports betting is illegal.

The sportsbooks, meanwhile, have been warned by some state regulators to stay away from sports event contracts. Last month, Arizona's gambling regulator sent a letter to the state's licensed gambling operators indicating that event-contract partnerships could "impact a licensing decision."

In May, Arizona's gambling regulator sent a cease and desist notice to Kalshi and Crypto.com, another prediction market platform. "There is no meaningful difference between buying one of your offered contracts and placing a bet with any other sportsbook," the regulator wrote.

Lawsuits involving prediction markets are under way in six states. The legal disputes could ultimately wind up in the Supreme Court, but legal experts don't see that happening before 2027.

Until then, DraftKing and Flutter investors are debating the impact of new competition. Last Friday, short selling firm Spruce Point Management wrote that it sees a 35% to 60% downside risk potential in DraftKings stock.

The firm wrote that DraftKings' New York handle -- the total amount wagered -- declined 8.9% from week three to week four of the NFL season. During the same week, Kalshi's handle climbed 31%.

Spruce Point says that prediction markets appear to offer better odds than the sportsbooks. "Kalshi charges just 1-2% per trade, while DKNG builds in an 8-10% vig and further adjusts its odds to protect its book, " the firm wrote. "We do not think it will take long for the market to recognize this opportunity and in fact we believe it is already happening."

Prediction markets are barreling ahead through the uncertainty. Last week, Kalshi began letting traders link sports event contracts to compound their winnings -- effectively re-creating a parlay bet, one of the online sportsbooks' most profitable products.

Write to Nick Devor at nicholas.devor@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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October 07, 2025 15:09 ET (19:09 GMT)

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