Investors are watching FanDuel and DraftKings delve into prediction markets with a mix of curiosity and apprehension, unsure if the potential profits are worth the legal and regulatory risks. Although both companies are proceeding confidently with this new endeavor, the market response has been noticeably restrained. Recent regulatory crackdowns against prediction markets in several states have added further uncertainty.
FanDuel and DraftKings Seek to Secure an Early Lead
The DraftKings prediction market app is launching soon across 38 states, including high-profile jurisdictions where online sports betting remains prohibited. Flutter Entertainment’s FanDuel brand will likely follow with its own launch soon. While these moves signal that neither company thinks it is putting its main sportsbook licenses at risk, investors remain unconvinced.
Unlike traditional sportsbooks, DraftKings’ prediction product operates under the oversight of the Commodity Futures Trading Commission rather than state gaming regulators. The app is more similar to a trading platform than a betting site, providing users with yes-or-no contracts on the outcome of events. Rather than directly setting odds, DraftKings routes trades through regulated exchanges such as CME Group.
Prediction markets open doors that sportsbooks cannot easily access. They can launch nationwide from day one without needing state-by-state licensing and sidestep gambling taxes. These benefits are the primary reasons why experts predict long-term potential for this vertical. According to early estimates, trading volume for prediction markets could reach over $1 trillion, with less than half tied to sports.
The Future of Prediction Markets Remains Uncertain
Barry Jonas of Truist Securities examined FanDuel and DraftKings’ moves in a recent note, arguing that the lack of investor hype was due to uncertainty rather than indifference. With multiple ongoing lawsuits and conflicting rulings at the state and federal levels, Jonas believes the disputes will eventually reach the US Supreme Court. Until there is a clear ruling, many investors remain apprehensive.
However, the short-term risks are hard to ignore. Nevada has already taken a harsh stance, cracking down on FanDuel and DraftKings’ prediction market ambitions. The two companies even severed their ties with the American Gaming Association (AGA), highlighting the growing rift between traditional gambling groups and firms moving into prediction markets.
DraftKings and FanDuel’s ambitions will largely depend on the ongoing legal conflicts. While a win for prediction markets could give the two companies an early lead, a ruling favoring state regulators will likely see them return to traditional sport wagering with limited losses. In a worst-case scenario, however, prolonged uncertainty could allow rivals such as Kalshi, Robinhood, and Coinbase to gain ground while the major sportsbooks wait for legal resolution.