Leading sportsbook look to get into closed state markets

It caught quite a few people by surprise when FanDuel, DraftKings and more recently BetFanatics and Betr (a microgaming and fantasy sports site owned by Joey Levy and Jake Paul of boxing fame), announced they were getting into the prediction markets game. Prediction markets have been around for almost a decade, but they really only caught the attention of the media and public during the 2024 election when Kalshi and Polymarket correctly predicted the U.S. election results. They both suggested that Trump was not only going to win, but could sweep the swing states and had a better than 50% chance to win the popular vote, despite polls showing the Democrats were far ahead. Kalshi said that this proves that the prediction market is far more accurate than polls because money was on the line and like most stocks, following the money usually leads to accuracy. No doubt the gambling companies paid attention, especially since most sportsbooks took bets on the election in countries outside the United States, including Canada, but as long as the prediction markets stuck with non-sporting events, they were of little concern to licensed sportsbook operators.

Predictions markets offer sports contracts

That changed when Kalshi announced plans in 2025 to start offering sports contracts. Fresh off a court victory in the U.S. district court for the District of Columbia that allowed Kalshi to offer betting contracts on the 2024 Presidential elections, and the Commodity Futures Trading Commission (CFTC) in May of 2025 deciding to drop its appeal against Kalshi, the prediction site felt emboldened and said it would start offering sports futures contracts as well. That announcement led Attorney Generals in Arizona, Connecticut, Illinois, Massachusetts, Montana, Maryland, Nevada, New Jersey and Ohio to issue cease and desist orders against the company, saying that prediction markets on sports were no different than sports betting. Kalshi, reiterated the 2024 ruling which said its offerings were legal and filed for a temporary injunction and restraining order against the states which would permit the company to ignore the cease-and-desist orders and continue offering sports contracts. The court granted Kalshi the temporary injunction.  

Not willing to wait for the court decisions, several sportsbooks, including the ones previously mentioned, decided to look into prediction markets to see if it was something they wanted to launch as well. The answer for many was yes, and FanDuel and DraftKings announced plans to launch a prediction market in all states where they currently don’t have sports betting by the end of 2025, while Fanatics already launched a live prediction market app in Florida, Texas, California and seven other states which don’t allow sports betting. No doubt the almost 50% drop in share price of DraftKings after the federal government ruled Kalshi’s product legal in 2024 was instrumental in the decision to move forward.

Kalshi’s argument has always been that their product, including sports betting, is protected everywhere because it’s governed by the CFTC and thus is no different than stock trading, which is legal in all states. They differentiate it from sportsbooks which are state governed by a Gaming Commission whose rules only apply to sports betting and casinos in those states. Lawyers for Kalshi say that unlike sportsbooks, which act as the house and make money off customer losses, prediction markets are peer-to-peer exchanges and the companies make money by taking a commission off trades, which is no different than traditional stock market trading companies like e-Trade, Chares Schwab, Robinhood or similar. States and many Tribal councils, however, have said that what Kalshi offers is just sports betting disguised as something else and what is relevant is the product itself and not which entity oversees it. Consequently, they want it stopped and want Kalshi and other prediction markets to stick to non-sports markets.

Things seemed to be going Kalshi’s way until last month when a Nevada District court judge ruled against Kalshi, lifting the injunction and allowing the Nevada Gaming Control Board to sue Kalshi for offering illegal sports betting. That paves the way for other states to lift their injunctions as well. That ruling sparked a class action suit in the Southern District of New York which currently has 6 complainants but is expected to include every state without legal sports betting and other states which feel Kalshi is overstepping its boundaries. It’s quite possible all 50 states will get involved and the class action seeks repayment for user losses, certification of a nationwide class, and a jury trial. It also asks for enhanced damages under various state laws and of course demands that Kalshi stop offering sports contracts.

The question that has to be raised is what is the real motivation is for traditional sportsbooks to get involved with prediction markets? I talked with a speaker at a recent conference who was on a panel related to prediction markets and he said that in his opinion DraftKings and FanDuel don’t see prediction markets as a major money maker or something they want to do long term, but feel that the best way to force courts to end Kalshi’s efforts and get rid of the competition is by getting into the market themselves.

"I have always been clear that for non-sports there is no concern with prediction markets because betting on elections is illegal. But a futures market on sports such as how many TDs Jonathan Taylor is going to score this season or which team is going to win the NCAA football championship is clearly just a form of sports betting. There’s little to no difference between betting on the Los Angeles Rams to win the Super Bowl at FanDuel which can be cashed out at any time for a profit or buying a contract on the Los Angeles Rams to win the Super Bowl at Kalshi which again can be sold at any time for a profit. It’s clearly just semantics but they are treated differently because one is deemed sports betting while the other is deemed trading. The outcome is the same. So, if you ask my opinion, I will say that the sportsbooks are saying “ok here’s proof that prediction markets on sports and a futures bet at a sportsbook are one in the same. We’ll offer both and you tell us the difference. If courts can see no difference, and they shouldn’t, then it gives the states some concrete evidence to prove the courts that Kalshi’s sports contracts are just a form of sports betting and should not be allowed. If successful, this eliminates the biggest threat to the traditional sports betting model. And make no mistake, the sportsbooks do not want to get into the prediction markets game. They are only doing so for survival just in case the courts eventually say it’s all perfectly legal."

Other analysts I spoke to, however, think the reasons for getting into prediction markets by the likes of DraftKings and FanDuel are far more nefarious. One sports betting analyst who I have stayed friends with and seems to be spot on with his analysis said that the sportsbooks see this as a way to force states without sports betting to change their tune.

"It’s not a coincidence that FanDuel and DraftKings only chose to launch in states without legal sports betting. They don’t want to cannibalize their sports betting revenue and they don’t want to upset the regulators in any states where they have a license. So, in states like Texas, California, Georgia and a few others, which would be huge money makers if they ever legalized sports betting, the books are saying “we’re launching in your state whether you like it or not.” Every gambler will be wondering why they can bet on the Los Angeles Dodgers to win the World Series at FanDuel as a prediction site, but not at FanDuel as a sportsbook. The likelihood is that state legislators will l look at it and say that the current model is illogical and instead will look for a way to profit. It would make no sense for a state to have prediction markets on sports where they make no money whatsoever, when they could just legalize sports betting with the same effect but get licensing fees and a percentage of the profits via a tax. And it also will put some states like Florida in a predicament. DeSantis gave a monopoly on sports betting to the Seminole Tribe, which FanDuel and DraftKings fought vehemently against, so this now gives them a way to get into Florida which the state and Tribe can do nothing about if prediction markets are deemed legal nationwide. And make no mistake, any sports bet can be made to look like a futures market. There’s nothing stopping these sites from offering a predictions market on how many points will be scored by the Miami Dolphins in the first quarter or how many successful field goals will be made in the Jacksonville game. And these companies are known to make what seems illegal be legal. Look at DFS. When it first came out, DFS was limited to team sports and was only allowed for a full slate of games over the day. But DraftKings pushed the boundaries and started offering markets on golf justifying it by saying each round was like a separate event. And then they offered NASCAR saying each 20-minute session was a separate event, etc. And in the end, it was all legal due to indifference. So now you can play DFS markets on single games, Esports, MMA, etc. It was never the intent when the courts allowed Fantasy Sports to be legalized in 2006, but these companies pushed the boundaries and no one stopped them. So how do you get sports betting into a state like Texas, California or even Utah? You call it a prediction market and force the states to surrender, even if it means changing the state constitution."

So, the prediction market situation is at quite a head. By all accounts the sports markets currently run by Kalshi are extremely successful and profitable, and not surprisingly traditional sportsbooks want in on the action. If either analyst I spoke to is correct then it’s a win/win for the sportsbooks regardless how the courts finally rule. If the courts eventually rule that only non-sports prediction markets are legal, then Kalshi, Polymarket and other prediction sites will be forced to cease their sports betting products in the United States, which will help eliminate the biggest competition to the sportsbooks. If the courts rule like they did in 2024 and say that any companies overseen by the CFTC are legal, then the sportsbooks will partner with a company reporting to the CFTC and offer the product in all states where they currently don’t have sports betting. And with the marketing and skillset that exists for DraftKings, FanDuel, BetFanatics and possibly others, they will no doubt challenge Kalshi in market share. It would also give them a way to operate in high tax states like New York and offer a form of sports betting without having to pay the tax. The question is how long the process will take? With the ruling in Nevada there’s little doubt that other states will demand a similar ruling to lift the injunction in their state and Kalshi will almost certainly demand that a final ruling by the courts be made to insist that all products governed under the CFTC are legal. It no doubt will be a long, ugly, drawn out process. One thing that is certain, however, is that the sportsbooks won’t be left behind.

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