Sports Betting Stocks Slide, as Industry Ponders Whether Prediction Markets are Peaking Early or Just Getting Started

But sports-event contracts first appeared on prediction market platforms less than a year ago, when Kalshi offered trading on the NFL conference championships, and Polymarket, Kalshi’s primary competitor, hasn’t fully re-entered the US. Additionally, fintech companies like Robinhood, Crypto.com, and Coinbase are entering the space in big ways.

While 5% may seem inconsequential, some industry insiders believe the rate of cannibalization figures to grow as prediction markets gain traction.

Early Adoption of Prediction Markets

DraftKings stock fell 8% on Friday, the company’s worst performance since September, and Flutter shares were down 6.3% to $188.46, their lowest level since August 2024.

While Citizens’ Jordan Bender acknowledged to Bloomberg, “We do believe prediction markets are having an impact on the sports betting companies,” he wrote in a Jan. 7 report, “The impact that bears have ascribed to the prediction market industry is currently proving to be overblown.”

In a conversation with Gambling Insider last week, Bender attributed prediction markets’ sudden ascent and the resulting decline in sportsbook stocks to “euphoria” created by the loud marketing of the likes of Kalshi and Polymarket. 

Meanwhile, in a report issued last month, titled “U.S. Prediction Markets: How Big, How Fast, What’s Next?,” Eilers & Krejcik posited that sports could account for $435 billion of a potential $1 trillion prediction markets industry.

“We are still in the early adopters phase of prediction markets,” professional bettor and tech entrepreneur Adam Robinson told GI. “What does the end of ‘26 look like when there are 22 operators, and Polymarket is in full swing?” 

Euphoria or Existential Threat?

The euphoria around prediction markets is bound to subside, particularly after football season, Bender believes. 

Kalshi last week trumpeted $100 billion in annualized volume by extrapolating a $1.98 billion week, in the middle of a packed sports schedule, over a 52-week period.   

“This is gonna die down at some point,” Bender said. “The people who are downloading this and [asking], ‘what is this?,’ we’re essentially at the peak of that right now. They’ve had a ton of app downloads, but it looks like the churn is super high.”

After curiosity drives non-sports bettors to the platforms, Bender ponders, “They might make a bet, they might not, and they never go back to this again because that’s not what they do. Sports bettors will bet on sports [and more likely on sportsbook apps long term]; non-sports bettors will not stick around.”

To others, though, the ascending asset class represents an existential threat to sportsbooks.

“It is premature to conclude the prediction markets do not represent a threat,”  said Robinson, who sits on the board of player advocacy group American Bettors’ Voice and hypothesized in a paper “Calling the Bluff: FanDuel’s Break-Even Analysis for Sports Prediction Market Entry” that FanDuel and DraftKings had no choice but to enter the prediction markets space.

“The analogy I would use is it would be like going back to the ‘90s and taking a look at Netflix’s mail order business impact on video rentals at Blockbuster. Of course they’re gonna conclude that there was no threat.”

Parlays, Props and Pricing Could Drive Players to Prediction Markets

While prediction markets aren’t likely to spend to acquire customers at nearly the level of FanDuel or DraftKings, multiple forces could push more players from sportsbooks deeper into the new platforms.

• Parlays and props: Prediction markets will continue to expand the options for these exotic wagers that public bettors love. Robinhood, in fact, announced Friday it is now offering customer parlays through its partnership with Kalshi.
• Pricing: Despite the “peer-to-peer” dynamic removing the vig players pay sportsbooks, it is currently more expensive to “trade” on Kalshi than to wager on sports betting apps. But the US re-entrance of Polymarket, which does not charge fees, will force Kalshi to adjust its pricing model.
• Taxes: Trading on prediction markets may allow gamblers to avoid the new 90% deduction cap on gambling losses, depending how the IRS decides to treat it. 

Better pricing will boost the supply needed to meet demand for parlays and player props, Robinson forecasts.

“If pricing gets tighter and the liquidity is there, your Joe Public parlay consumer is going to learn that they can get a better price on Kalshi or Polymarket for their combo than they can on FanDuel for the same parlay,” Robinson said. “I think in 2026, that story is going to be talked about. 

“We are barely scratching the surface, and I know this because we are involved heavily in RFQs for parlays and pricing them. There is a lot of room to run. There is nowhere near the amount of liquidity in the market available that the market wants.”

Sportsbook VIPs: Stay or Go?

The 10% of customers responsible for 80% of handle at regulated sportsbooks – whales who get VIP treatment and sharps who are shown the door as soon as books spot them – are particularly vulnerable to the new gambling tax rule, “another force that will incentivize action to move the prediction markets,” Robinson said.  

“[Prediction markets will] get a lift from whales and VIPs whose accountants say, ‘you know, if you do it this way next year, you’re gonna owe money that you’re not accustomed to owing.’”

Bender sees it differently. Sportsbook VIPs will continue to be incentivized to stay, or return, by the benefits operators lavish upon their most profitable customers.

“They’re there because they’re treated like VIPs, and they’re treated like VIPs [to incentivize them] to come back,” Bender commented. 

“I don’t necessarily buy into the narrative that those [customers] are high risk of leaving those platforms,” he added. “That’s the difference between a sportsbook and prediction market, at least at this point. One is a bookmaker that can offer you financial incentives, one is an exchange that cannot.”

More Ways to Win

Among the early entrants in sports event contracts, Robinhood is well-positioned to emerge as a winner, according to Bender. The financial trading app is simply cross-selling its prediction market platform to its existing user base at minimal customer-acquisition cost.

While Kalshi’s road to winning as a sports exchange appears more difficult, there are multiple paths to potential success.

A Citizens report in December projected prediction markets’ revenue would grow from $2 billion currently to $10 billion by 2030, fueled by non-sports contracts and data-based offerings. 

“There could be other winners, in terms of data,” Bender said. “We’re seeing a lot of these companies partner with CNN, CNBC, Yahoo Finance to sell data, and there’s also other pieces of the sports betting industry, [such as] the data suppliers like Radar and Genius. 

“There’s a lot of different ways to win, but how we actually get to that ultimate winner or those winners, I think we’re gonna take a lot of twists and turns until we get there.”