Traditional gambling stocks, led by DraftKings and Flutter Entertainment, experienced a significant sell-off as data indicated a shift in market share toward emerging prediction market platforms Kalshi and Polymarket. The decline was particularly pronounced ahead of the NFL playoff season, a period that typically boosts engagement for betting platforms.
DraftKings (DKNG) stock fell 7.6% to a one-month low of $32.83, while Flutter Entertainment (FLUT) dropped 5.6% to a six-month low of $190.17. The broader S&P index for the gambling industry shed an average of 2.5%. This downturn occurred despite DraftKings and Flutter launching their own native prediction platforms in states where sports gambling is illegal; these new offerings have yet to gain significant traction or outperform the growth of crypto-native competitors.
Analysts point to the rising influence of prediction markets as a key factor. Kalshi, a regulated Designated Contract Market, now controls 66.4% of global prediction market trades, specializing in sports. Polymarket, a crypto-native platform, has also seen surging daily activity and volumes, particularly around financial and political predictions. Jordan Bender, an equity research analyst at Citizens, stated in a Bloomberg report, "We do believe prediction markets are having an impact on the sports betting companies." He highlighted that these platforms are built around major events like the NFL playoffs.
The appeal of platforms like Polymarket and Kalshi is attributed to perceived fairness and accessibility. Polymarket publicly contrasted itself with traditional sportsbooks, posting on social media, "Sharps are welcome on Polymarket. No limit. No bans. Unlike sportsbooks, we want you to win." This followed industry leaks suggesting some sportsbooks attempt to curb winning players with a competitive advantage.
Despite their rapid growth, prediction platforms still represent a small portion of the overall market, accounting for only about 5% of total funds wagered on sports outcomes. Traditional sportsbooks have reported a 40% year-on-year revenue decline, a slide not yet offset by Polymarket's volumes. Polymarket itself faces challenges including bots, low liquidity in some markets, and disputed resolutions.
The sector is navigating a complex regulatory landscape. Kalshi benefits from a federal preemption over state gambling laws, while all prediction market companies face ongoing scrutiny and claims they may need to be regulated under existing gambling statutes.
