DraftKings' and FanDuel's Necessary Push Into Prediction Markets: Analysis

The collective business arcs of DraftKings and FanDuel have taken the gambling giants from brash daily fantasy providers to insurgent, then dominant legal sports betting platforms in the United States, to billion-dollar companies protecting investors by pivoting into a legally contentious new opportunity.

Ultimately, the decisions to launch FanDuel Predicts, DraftKings Predictions, and DKeX to capitalize on the fervor for sports event contracts that, opponents contend, very much resemble sports betting, even in states that haven’t legalized the practice, could prove to be the next lucrative turn for these ambitious companies.

Or, the natural course of business and innovation could reveal their future role in the new food chain. But for now, said Jeff Laniado of customer relationship management firm Optimove, this was a move they needed to make.

“If I'm [DraftKings co-founder and CEO] Jason Robins and I'm leading DraftKings, or if you’re the FanDuel CEO, you're thinking about where the ball is going, what the next five years look like,” said Laniado, who manages Optimove’s gambling account. “And I think that there's a very strong argument to be made for prediction markets becoming the mainstream way of exchanging money on sports.”

Such, he said, is the nature of disruption in any industry. And in this case an ironic one with the still-teenaged digital upstarts, which wielded massive brand identities — and email databases — to capture upwards of 80% of the legal sports betting market in the U.S. at the expense of the landed casino companies like MGM and Caesars. Prediction markets with brash CEOs like Tarek Mansour (Kalshi) and Shayne Coplan (Polymarket) have become the invaders at the expense of massive, publicly traded gambling companies, now including FanDuel and DraftKings. The incursion began just last year and spread quickly with the popularity of sports even contracts that now comprise the bulk of these platforms' business, as opposed to their traditional offerings of agricultural or weather markets.

There Will Always Be a Next Big Idea

The notion is nothing new. Panelists at a gambling conference Laniado attended in 2022 were already looking over the horizon at the giants’ demise when asked for predictions on the future of sports betting. No one actually mentioned predictions, but they foresaw challengers of the then-new marketplace.

“I remember one guy said Netflix because they had just launched games on the app, social games,” Laniado remembers. “And it seemed like maybe Netflix was positioning themselves. One guy said that if Apple wanted to take over, they could.

“And one of the guys on the panel said that the company that is the leading sports betting gaming operator ten years from now hasn't even taken a bet yet. Basically [they were] saying that there is going to be a company that will be leading the charge in 10 years from now that we're not even talking about, that we don't maybe even know exists.”

Prediction Market Frenzy Pushes Legal Boundaries

The timeline was vastly exaggerated. Crypto.com offered the first sports event contracts in the U.S. in late 2024; Kalshi followed in February 2025. Others followed that bold rush into a potentially polarizing legal loophole, with Mansour and his ilk contending that the outcomes of sporting events on prediction markets constituted the “swaps” markets sanctioned by the Commodity Futures Trading Commission (CFTC). States with and without legal sports betting economies, unable to license or tax prediction markets operating within their borders, have launched legal battles that have ebbed and flowed like a battle map.

And all the while, more came, including Polymarket from exile under the Biden Administration, a host of smaller companies, and, as market share and legal battles intensified in these exchanges, state-licensed sports betting brands DraftKings, FanDuel, and Fanatics. The crowded landscape now includes financial apps, fantasy apps, and sweepstakes casino apps that have zigged within the legal landscape.

Kalshi Crowned Current Champion of Booming Industry

But Kalshi has clearly pushed itself to the fore, with between 75% and 90% of its volume comprising sports and $4.9 billion handled in the opening week of the NFL season, according to Aldrin Research. Prediction markets absorbed $5.83 billion in volume collectively during that period.

“Here we are, not even close to 10 years later — and we'll see where the numbers come out — but maybe at the end of this year, in the football season, Kalshi, depending on how you measure it, maybe even is number one right now,” Laniado said.

But can it stay there long-term? The DraftKings-FanDuel re-think from DFS to dominant sports betting players at the expense of legacy gambling companies already proved that “being first doesn’t mean you’re going to be one of the winners,” said Ed Moed, CEO of the Hot Paper Lantern marketing and communications firm, which handles numerous gambling clients. Ultimately, he said, a good product will win.

“Think of Yahoo, think of MySpace,” he said. “I think what DraftKings and FanDuel did so well was they were absolute digital disruptors, and they created good and then very good products where the others didn't.

“It wasn't just a head start [in sports betting]. It was a mindset in how they innovated and created really good products. Because in the end the brand won't last if the product isn't good. That’s the bottom line. People won't come back.”

DraftKings, FanDuel, and eventually Fanatics could have opted to await a legal resolution and, therefore, potential backlash from state regulators in the states where they take sports bets. Prediction markets' legal counsel was on a run of success in fending off cease-and-desist orders and court rulings when they launched their exchanges. Those victories have since been reversed in court, calling into question the potential damage to state-level relationships for these three companies if judges eventually deem sports event contracts to be sports betting and leave them to state-licensed sportsbooks.

“It will be a lot to undo,” Moed observed. “What happens if in two years the other party gets into the White House and whether it takes a month or a year, they push that, nope, this is a state-by-state regulated thing the way it should have been?

“I think there's so much money, the billions that are going into this market, that there will be a ton to unwind. But I do think that the smarter companies are looking internationally.”

Still, it was a worthwhile gambit, Laniado said. For many companies in the retail casino industry, it isn’t. DraftKings, Fanatics and FanDuel left the American Gaming Association trade group late last year to pursue their conflicting agendas on sports event contracts in the Sports Betting Alliance.

“FanDuel and DraftKings have to kind of go this route to almost hedge against that being the future of sports betting," Laniado said. “The decision by FanDuel and DraftKings and Fanatics, I think, makes sense. They have this fallback plan.

“They tend to [gamble] on these emerging verticals. But who it's really interesting for is a Caesars or a BetMGM or a Rush Street, who have closer ties to the AGA. They really can't launch a prediction market because they're so intertwined with the regulated gaming front. They can't really sacrifice that relationship.”

Those legal outcomes will eventually determine if those legacy companies bet (or traded) on the right horse.

“If things do continue to go in this direction and eventually when it does end up in the Supreme Court, or if this becomes like a long-term viable way of engaging with sports,” Laniado said, “those companies are probably in trouble.”

Saturation, Annihilation, Inevitable

Scores of suitors for sports betting market share control vanished after the heady years immediately following the SCOTUS repeal of the Professional and Amateur Sports Betting Act in 2018. With 34 jurisdictions having legalized sports betting by 2022, leaders at networks like Fox and ESPN, streaming services like Fubo, and lad mags like Maxim saw niches. They all failed and were otherwise merged, acquired, or simply went away.

Laniado posits that while Kalshi will dominate whatever the near future of sports betting/trading holds, there remains room for boutique brands that couldn’t survive the nascency of sports betting.

“There's a whole graveyard of these [shuttered apps], and I think that could definitely be the case [again],” he said. “But I think maybe there's a few reasons why I’d argue against it. First, the barriers to entry are lower.”

Prediction markets have vigorously promoted themselves as legal nationwide because of CFTC oversight. Without the guardrails of state-level compliance, they’re free of taxation and licensing fees applied to legal sportsbooks. Money can be spent elsewhere, and profit is theoretically more feasible.

A LinkedIn post by Bryan Bennett, the former CEO of Betfred’s now-shuttered U.S. sports betting operation, highlighted what he called the “painful” process of maintaining a multi-state business.

“Fragmented state-by-state compliance and licensing standards is strangling innovation,” he posted. “Nimble startups that are typically the lifeblood of innovation can't make it in the US regulated world as operators. It's just not possible.

"When I was running Betfred, we had tech stacks in 10 data centers because each state mandated that the equipment had to be in-state. That's over $9M in equipment when one stack in one data center would have been more than enough. It's painful.”

Betfred’s last U.S. outlet closed in July of 2025. Even lower-volume prediction markets, Laniado believes, have a better chance of survival freed from such overhead.

It could be those unforeseen competitors that doom them.

“I also think the quality of the companies that are getting in,” he speculated, “if you think about Robinhood, or you think about Facebook, which is toying with the idea, these are a little bit more probably third-year financially sound companies than a Fubo or a Maxim or whoever.”

Moed said that the quality of apps and how investors view them will impact prediction-market aspirants, like their sportsbook predecessors. But the inevitable thinning, he said, will also be subject to outside influences.

“My gut tells me it'll happen quicker than it happened with sports betting because of the legal, regulatory, and political landscape in the US and how that might shift or not,” he said.

Robinhood, Underdog and the New Threats to Kalshi

Robinhood, with its 13 million active monthly users and 28.4 million funded users, could be an immediate threat, Laniado said, if it expands its sports event contract offerings to match its stock, crypto, and options/futures markets.

“Robinhood to me is the sleeping dog,” he said. “They have a crazy big engaged base that is already through [know your customer protocols] and already has funds connected. It feels like if they wanted to push the gas on prediction markets, they could become the third player like tomorrow.”

Moed believes that Robinhood could grow into the market leader if it emphasized prediction markets more.

“And you look at IG Group buying Underdog,” he said of the online trading platform’s $1.1 billion July acquisition. “Well, that's a major statement. Underdog's a completely trusted brand in what they do. Now they're going to be able to go international. Now they may offer other things beyond sports.”